It’s always extremely exciting when you rake in impressive winnings when playing your favorite online casino games or when out for the night at a land-based casino. Unfortunately, though, the high that comes with a win can quickly turn into a downer if you don’t ensure that you’re on the right track regarding your taxes.
So, are casino winnings taxable? The answer, in short, is yes. The IRS considers any money that you win while logged into an online casino, or when playing in-person at a land-based gambling establishment or event, taxable income. Other forms of winnings that you’ll need to pay tax on include any winnings collected through successful sports betting, winning the lottery or winning money on a game show. Even tiny winnings from things like scratch cards need to be reported and taxed. Luckily, it’s not all bad news. Read on for details.
Are gambling losses deductible?
Gambling winnings are indeed taxable, but the saving grace is that gambling losses are deductible. If you want to be certain that you’re not paying too much (or too little!), it’s vital that you keep comprehensive records of the outcomes of your sessions whenever you play casino games. Along with an accurate gambling log, this could also mean holding onto payment slips, statements and receipts detailing how much you’ve won or lost. After all, you’ll need to supply proof of any winnings and/or losses to ensure they’re properly taxed or deducted.
What details should be included in my gambling log?
According to the IRS, your gambling log should include the following information:
The date on which you gambled
The type of gambling activity in which you took part
The name and URL of the online casino or the name and address of the land-based casino or gambling event
The names of other people taking part, if applicable
How much money you won or lost
What is Form W-2G and when is it necessary?
Form W-2G is the document dedicated to reporting how much you’ve won through your gambling activities and how much, if any, has already been withheld for tax purposes.
Usually, Form W-2G is sent to you by the casino or event organizer responsible for paying out any significant winnings. You can expect to receive this form before the end of January following the year in which you won the money in question.
Generally, you can expect to receive Form W-2G if you won over $5,000 while playing the lottery, sweepstakes or a casino table game such as poker; over $1,200 while playing bingo or a slot machine; or over $1,500 while playing keno. You’ll also receive the form if the casino or event organizer withheld any tax (usually 24%) from your winnings (which is expected to happen in most of the favorable outcomes mentioned above.)
Remember, not everyone who plays casino games will receive and need to complete and submit Form W-2G, but everyone who takes part in any form of gambling with real money needs to report their winnings on their tax return. If you don’t receive Form W-2G, you’ll need to report your winnings as “Other Income” on Form 1040.
Did you know? Any money won from playing a skill-based casino game, like poker or blackjack, usually doesn’t involve withheld taxes – although you’ll still need to report these winnings in your return!
How much tax do I have to pay on my gambling winnings?
The simple answer is that you can expect to pay a flat rate of 24% tax on any money you win as a result of your gambling activities, but if you win more than $5,000, your winnings will usually be subject to income tax withholding.
There are also state taxes to be aware of, and these vary quite dramatically from state to state, so be sure to do some research into these rules when compiling and submitting your tax return.
The casino has already withheld tax – will I have to pay more?
That depends. The IRS will evaluate your overall income and your complete tax return and then, relevant to your gambling winnings vs losses and your tax rate, you may have to pay more in tax or you may get a portion of your money back.
How can I deduct my losses?
Your gambling-related deductions should be included as “miscellaneous deductions” on Schedule A. There’s no 2% limit for these deductions, so you can deduct more than just the amount over 2% of your adjusted gross income.
Note that it’s important to itemize your deductions if you want to deduct your gambling losses, and to report all winnings and losses separately. It’s not correct to simply report a total amount, and you could be penalized for doing this.
Finally, be aware that you’ll only be able to deduct your gambling losses up to the total amount of your winnings.
Note that tax rules differ for professional gamblers. All the information provided above is intended for people who play casino games for fun in their free time. Professional gamblers’ winnings are viewed as regular earned income and taxed at a normal effective income tax rate. Also, for professional gamblers, losses are viewed as job expenses and can be deducted using Schedule C.