State Taxes On Gambling Winnings
Taxes On Online Gambling
How To Not Pay Taxes On Casino Winnings

This is one of the most common misconceptions about online gambling. People think of it differently because it happens on the computer and the companies - and other players - aren't Americans. They don't think of it the same way they view playing in Vegas. They assume they don't have to pay taxes, that they earned the money 'under the table.' For many of us, gambling means buying the occasional lottery ticket on the way home from work, but the Internal Revenue Service says that casual gambling also includes raffles, casino games, poker, sports betting—and, yes, even fantasy football. When you win, your winnings are taxable income, subject to its own tax rules. When it comes to federal taxes, lottery winnings are taxed according to the federal tax brackets. Therefore, you won’t pay the same tax rate on the entire amount. The tax brackets are progressive, which means portions of your winnings are taxed at different rates. Fortunately, you do not necessarily have to pay taxes on all your winnings. Instead, if you itemize your deductions, you can claim your losses up to the amount of your winnings.Note, under the new tax reform law, the gambling loss limitation was modified.

Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.

Casino Winnings Are Not Tax-Free

Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.

By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.

How Much You Win Matters

While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:

$5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
$1,500 (reduced by the wager) in keno winnings.
$1,200 (not reduced by the wager) from slot machines or bingo
$600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.

Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.

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Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.

What is the Federal Gambling Tax Rate?

Standard federal tax withholding applies to winnings of $5,000 or more from:

Wagering pools (this does not include poker tournaments).
Lotteries.
Sweepstakes.
Other gambling transactions where the winnings are at least 300 times the amount wagered.

If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.

The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.

State Taxes On Gambling Winnings

It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.

Can You Deduct Gambling Losses?

If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.

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The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.

What About State Withholding Tax on Gambling Winnings?

There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.

Not Paying Taxes On Gambling Winnings