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Gambling Winnings: Introduction
Gambling winnings are fully taxable, so you won’t get to keep every penny even if you beat the odds and win big. The Internal Revenue Service (IRS) has ways of ensuring that it gets its share.
Casino winnings and winnings from lotteries, horse races, off-track betting, sweepstakes, and game shows are all taxable.
But there’s a bit of good news here. If you itemize your deductions, you can deduct gambling losses up to the amount that’s offset by your winnings. You must be able to prove the numbers with records of your winnings and losses.
Roughly 79% of people who visited Las Vegas in 2023 took to the gambling tables, and they weren’t alone. Casinos abound in a variety of cities across the country and online gambling options are endless.
Make sure that you understand the tax laws as they relate to gambling before you head to the Las Vegas Strip or another venue. You’ll want to avoid a tax mess with the IRS down the road.
Key Takeaways
- Gambling winnings are fully taxable.
- The payer will deduct 24% from your winnings on the spot if you win more than a certain amount.
- You’ll report your winnings and your tax payments to the IRS when you file your annual tax return.
- You then may have to pay more in taxes or you may get a refund, depending on your tax bracket.
- You can deduct gambling losses up to the amount of winnings that you report, so be sure to keep records that can substantiate them.
How Gambling Winnings Are Taxed
When you collect your winnings, the payer will deduct 24% of the total for taxes. They also will give you a copy of IRS Form W-2G to record the transaction if you win a substantial amount of money in any legally operated game of chance.
What is a “substantial amount of money” in gambling? That depends on the game. It’s $1,200 or more at slot machines or bingo games, but it’s $1,500 for keno. It’s $5,000 for sweepstakes, wagering pools, and lotteries.
In any case, 24% of the amount won will be deducted from your payout and sent directly to the IRS with Form W-2G as the documentation. That 24% is an estimated tax. You might get some of it back or you might owe more.
Important
Taxes on winnings at certain table games like blackjack are not immediately withheld but you’re still required to report the income and pay taxes on it.
Exceptions to the Rules
Casinos aren’t required to withhold taxes or issue a W2-G to players who win large sums at certain table games, such as blackjack, craps, and roulette.
The casino cannot determine with certainty how much money you started with when you cash in your chips from a table game but this doesn’t absolve you of the obligation to report what you won to the IRS. You’ll include the amount of your winnings when you file your tax return for the year.
Make sure to keep good records of your gambling activities. That means the losses as well as the gains. You might be able to avoid paying taxes on the money if you spent $2,000 to win $2,000.
Fast Fact
In 2018, the U.S. Supreme Court struck down a federal ban on sports betting. The move allowed states the right to decide whether to legalize it. Since then, many states, along with Washington D.C. and Puerto Rico legalized sports betting.
Reporting Gambling Winnings
You’ll report the income and the taxes already paid on it under “Other Income” on your Form 1040 tax return when you prepare your taxes for the year in which you won a gambling payout.
Remember, the 24% you already paid was an estimated tax. The real amount you owe (or for which you may be reimbursed) depends on your total income for the year.
There are seven tax brackets. The income thresholds for each tax bracket are set by the IRS and adjusted annually for inflation. If you end the year with a greater amount of income, you may fall into a tax bracket that’s higher than 24% and might owe more than the amount withheld.
Taxes for Professional Gamblers
Gambling proceeds are usually considered regular earned income and are taxed at a taxpayer’s normal effective income tax rate, if gambling is their actual profession. As such, they’d be considered a self-employed individual and the income and expenses therefore must be recorded on Schedule C.
Tip
A professional gambler can deduct gambling losses as job expenses using Schedule C (not Schedule A).
Gambling Income Tax Requirements for Nonresidents
The IRS requires nonresidents of the U.S. to report gambling winnings on Form 1040-NR. Such income is generally taxed at a flat rate of 30%.
Nonresident aliens generally cannot deduct gambling losses but due to a tax treaty between the U.S. and Canada, Canadian citizens may deduct their gambling losses up to the amount of their gambling winnings.
Are Gambling Losses Deductible?
You are allowed to deduct any money you lose from your gambling winnings for tax purposes but gambling losses in excess of what you win may not be claimed as a tax write-off.
Do States Tax Gambling Winnings?
For tax purposes, some states require gambling winners to claim the gambling winnings in the state where they were won. Most states tax all income earned in their state, regardless of your residency. Your resident state will also require you to report the winnings but will offer a credit or deduction for taxes already paid to a non-resident state.
Do Casinos Report Gambling Earnings to the IRS?
Yes, but certain thresholds must be exceeded to trigger such reporting. Winnings beyond either $600 or 300 times your initial wager must be reported at a horse racing track. All winnings in excess of $1,200 must be reported for slot machines and bingo, and the level is $5,000 in a poker tournament.
The Bottom Line
Gambling winnings are fully taxable, according to IRS regulations. However, gambling losses can be deductible up to the amount of your winnings if you choose to itemize deductions on your tax return. Be sure to maintain detailed records of your wins and losses to support your tax deduction claims.
If you or someone you know has a gambling problem, you can call the National Problem Gambling Helpline at 1-800-GAMBLER (1-800-426-2537) or visit ncpgambling.org/chat to chat with a helpline specialist.
