In life, there are situations that can be considered as “good problems,” such as deciding how to enjoy your gambling winnings after a successful play. Another aspect of this is the responsibility of paying taxes on your winnings. Although it may be difficult to accept the need to part with a portion of your windfall, it is a positive issue in the sense that it only arises when you have actually won.
In many situations, you may not be required to pay any money at all. When you achieve success in horse or sports betting, online casinos, or through a lottery ticket, the organization giving out the prize usually deducts the taxes on your behalf. In such cases, all you need to do is inform about your victory. It is your responsibility to determine if you are liable for paying taxes on your winnings.
The IRS and numerous states and local municipalities in the United States require reporting of all sources of financial improvement, including gambling income, if it exceeds a specific threshold. Therefore, it is essential to consider your winnings as taxable income.
We have a resource guide available to assist you with gambling winnings and taxes in the United States. This guide addresses frequently asked questions on the subject. However, please note that it is not an exhaustive tutorial. If you require more in-depth information regarding your specific circumstances, it is recommended to consult a knowledgeable and trustworthy accountant or tax lawyer.
Do I have to pay tax on gambling winnings in the US?
Indeed, gambling winnings exceeding a certain threshold are indeed liable to federal income tax. Hence, to put it simply, gambling winnings are taxable in every state, at least in terms of federal taxes.
Regarding state income tax, certain states mandate residents to pay taxes on gambling winnings, while others do not. Each state has its unique regulations concerning the taxation of gambling winnings. Among the states that do require taxes, some impose a fixed percentage, while others utilize a formula to determine the amount owed in state taxes based on the winnings obtained.
Continue reading to find out if your state mandates the payment of state income tax on gambling winnings. (Refer to “Do you have to pay state taxes on gambling winnings?”)
Are gambling winnings taxed as income?
Indeed, gambling winnings are regarded as a type of earnings, thereby rendering them liable to taxation akin to other forms of income.
When it comes to taxes, gambling winnings are occasionally referred to as “gambling income.” Interestingly, when you file federal taxes for your gambling winnings, the designated section on the form where you report the amount you’ve won is labeled as “Other Income.”
Put differently, when you win substantial amounts from gambling, it increases your overall earnings and has the potential to move you into a higher tax bracket.
Lottery winners frequently face the choice of receiving their winnings in a single lump sum or opting for a series of payments over several years. This decision carries notable tax consequences.
Do I need to pay federal taxes on gambling winnings?
You are indeed obligated, but only if your winnings surpass a specific threshold. In the event of winning in gambling, the payer is expected to provide you with a Form W-2G if your winnings exceed the following thresholds:
- $1,200 or higher (without deducting the bet) obtained from playing bingo or slot machines
- The amount from keno, after subtracting the wager, is $1,500 or higher.
- A minimum amount of $5,000 (minus the wager or buy-in) earned from participating in a poker tournament.
- $5,000 or greater obtained through lotteries, sweepstakes, or betting pools.
- If the winnings from other forms of gambling equal or exceed 300 times the wager (for example, winning $600 from a $2 horse racing bet), the payer may choose to deduct the wager amount from the total winnings.
The federal income tax withholding for these gambling winnings is a fixed rate of 24%.
If the winnings are significant, the payer, such as the casino, may choose to withhold that amount before issuing your winnings. In such cases, you are not required to pay taxes on them when filing your return, although you still need to declare the winnings. However, if the winnings are not withheld, you will need to pay the taxes at a later time.
When the W-2G form is created for the winner, it also triggers the generation of a report from the payer to the Internal Revenue Service.
When you receive a substantial payout from a slot machine and the casino provides you with a W-2G, it is crucial to report your winnings while filing your federal income taxes. Although the IRS may not have directly acknowledged your fortunate victory, the W-2G form prepared by the payer ensures that they are well aware of it.
Do I pay state taxes on gambling winnings?
The answer varies based on the state of residence.
Some states exempt residents from paying state income tax, meaning that you don’t have to concern yourself with state taxes on gambling income in those particular states. The states where this applies are:
- Alaska
- Florida
- New Hampshire
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Please be aware that New Hampshire and Tennessee impose state tax on dividends and interest, but they do not require payment of income tax. Conversely, all other states mandate the payment of state income tax, in addition to the federal income tax that you are obligated to pay annually.
In certain states, it is not necessary to pay any extra state income tax on gambling winnings. In such states, fulfilling your federal income tax responsibility for your gambling winnings also covers your obligation.
On the other hand, there are states that necessitate an additional state income tax payment on gambling winnings. The specific amount of tax imposed by each state can vary depending on several factors. For instance, certain states impose a fixed tax rate for lottery winnings, whereas they apply a different rate for other forms of gambling income. Additionally, some states determine the tax amount based on the winner’s overall income.
Which states require payment of state taxes on gambling winnings?
Below is a table displaying the most recent updates on states that impose taxes on gambling winnings. It is important to note that each state has its own specific tax rate and regulations when it comes to taxing gambling income. It is worth mentioning that while some states tax all gambling winnings, lottery winnings may be exempted from state taxes in certain instances.
| State | State tax on gambling income? | |
|---|---|---|
| Alabama | Yes | |
| Alaska | No | |
| Arizona | Yes | |
| Arkansas | Yes | |
| California | No | |
| Colorado | Yes | |
| Connecticut | Yes | |
| Delaware | Yes | |
| D.C. | Yes | |
| Florida | No | |
| Georgia | Yes | |
| Hawaii | No | |
| Idaho | Yes | |
| Illinois | Yes | |
| Indiana | Yes | |
| Iowa | Yes | |
| Kansas | Yes | |
| Kentucky | Yes | |
| Louisiana | Yes | |
| Maine | Yes | |
| Maryland | Yes | |
| Massachusetts | Yes | |
| Michigan | Yes | |
| Minnesota | Yes | |
| Mississippi | Yes | |
| Missouri | Yes | |
| Montana | Yes | |
| Nebraska | Yes | |
| Nevada | No | |
| New Hampshire | No | |
| New Jersey | Yes | |
| New Mexico | Yes | |
| New York | Yes | |
| North Carolina | Yes | |
| North Dakota | Yes | |
| Ohio | Yes | |
| Oklahoma | Yes | |
| Oregon | Yes | |
| Pennsylvania | Yes | |
| Rhode Island | Yes | |
| South Carolina | Yes | |
| South Dakota | No | |
| Tennessee | No | |
| Texas | No | |
| Utah | No | |
| Vermont | Yes | |
| Virginia | Yes | |
| Washington | No | |
| West Virginia | Yes | |
| Wisconsin | Yes | |
| Wyoming | No |
Many states have a requirement for non-residents to pay state tax on gambling winnings earned within their borders. If you receive a W-2G for your gambling income, the state where you won that money will also receive a duplicate copy.
Typically, when you pay taxes on gambling winnings in a different state, you can claim a tax credit in your own state to avoid being taxed twice.
If the amount you won or your total income in the state where you received the winnings satisfies the minimum filing requirement set by that state, you will be required to submit a non-resident state return, unless the taxes were already deducted from your winnings. In the case of Minnesota, if your gambling winnings exceed the $12,200 threshold for filing a state return, you will need to file a nonresident return.
In summary, it is crucial to thoroughly examine your potential responsibilities regarding state taxes on your gambling win if it is substantial enough to require a W-2G form.
What are considered gambling winnings?
The phrase “gambling winnings” encompasses the winnings acquired from various gambling games, including both monetary rewards and other valuable prizes, such as those obtained through sweepstakes or raffles.
This encompasses the earnings derived from conventional casino games, such as:
- Slot games
- Bingo
- Keno
- Poker (tournaments)
- Other table games
Although W-2G forms are not generally issued by casinos for table games such as baccarat, blackjack, craps, roulette, or poker cash games, it is still mandatory to declare and pay taxes on your winnings from these games, regardless of the absence of a W-2G form.
In addition to other forms of gambling, winnings can also encompass money earned through sports betting, such as:
- Sports betting can be done either online or in a physical retail sportsbook.
- Betting pools, such as those seen in “March Madness” competitions.
- Daily Fantasy Sports
- Live and off-track betting is available for both horse and dog races.
In addition to that, gambling winnings encompass earnings from other permissible forms of gambling, such as:
- Lottery
- Sweepstakes
- Raffles
- Game shows
How are different types of gambling winnings taxed?
Taxes on state lottery wins
Earnings from winning the lottery are considered gambling income and are subject to federal income tax regulations. Generally, federal taxes are applicable for winnings exceeding $600.
States that have lotteries generally only require tax withholding on winnings that surpass a specific threshold in terms of state income tax. For instance, in New Jersey, lottery winnings exceeding $10,000 are liable to state income tax. On the other hand, certain states impose taxes on gambling winnings, excluding lottery winnings. California serves as an illustration of such a state.
Taxes on multi-state lottery wins
When receiving a significant prize from multi-state lotteries such as Powerball or Mega Millions, federal taxes are automatically deducted from the payment. Additionally, individual states typically require a portion of the winnings in the form of state income tax.
Lists of the “best and worst states” to win the Powerball occasionally circulate. Presently, New York imposes the highest state tax rate of 8.82% on lottery winnings. Conversely, states such as California, Florida, Pennsylvania, and others do not levy any state tax on fortunate lottery winners.
Taxes on slot machine wins
Casinos are mandated by the IRS to report any slot machine wins that amount to $1,200 or more. If you happen to hit such a jackpot, you will be provided with a W-2G form alongside your winnings. Typically, the casino will not withhold any taxes on site unless your winnings surpass $5,000. In such cases, they will deduct 24% for federal taxes. Additionally, if your state requires it, you will also be responsible for paying state income tax on your winnings.
To generate the W-2G form, it is necessary to furnish the payer with certain personal details, such as your Social Security Number. Failure to provide your SSN may result in the casino withholding taxes on minor jackpots.
Taxes on sports betting wins
If you happen to win money by placing bets on sports either at a physical or digital sportsbook, it is necessary for the entity providing the winnings to report any amount equal to or exceeding $600. Just like when you win at a slot machine, if your winnings surpass $5,000, the sportsbook may deduct 24% of the total as per federal tax regulations. Additionally, depending on the state you reside in, you might also be liable to pay state income tax.
Although the majority of sports bettors do not deduct their losses, it is indeed feasible to do so. Find assistance below to address the query: “Is it possible to report gambling losses?”
Taxes on daily fantasy sports wins
Similar to sports betting wins, daily fantasy sports winnings are subject to taxation. Because DFS is mainly conducted online and can be seen as a form of gambling, it is important to understand how the fantasy sports platform handles the issuance of W-2G forms for reporting your winnings.
Taxes on poker wins
If you are fortunate enough to win $5,000 or more in a poker tournament, whether it is held live or online, you are required to report and pay taxes on your winnings as gambling income. It is important to note that the $5,000 threshold refers to the profit you make from the tournament, which is calculated by deducting the tournament buy-in from your cash prize. In most cases, when you receive your payout for winnings at or above this threshold, you can expect to be issued a W-2G form.
Similar to other table games, poker in cash games is typically not monitored by casinos for winnings or W-2G forms. Nevertheless, it remains your responsibility to keep a record of your wins and fulfill tax obligations as required.
Are gambling winnings reported to the IRS?
Yes, they are.
As mentioned earlier, if the amount of gambling winnings surpasses a specific threshold, the payer is required to produce a W-2G form for the recipient. This practice is commonly followed by brick-and-mortar casinos, who provide these forms to the winners. Similarly, online casinos and sportsbooks will also issue W-2G forms to individuals who achieve significant winnings on their platforms.
In addition to assisting winners in reporting their gambling winnings for income tax purposes, the W-2G form also enables the payer to submit a report of the winnings to the Internal Revenue Service.
How long do I have to claim my winnings with the IRS?
When filing your tax return, it is important to report your gambling winnings from the previous calendar year, just like any other income.
Extensions and other exceptions are applicable in a similar manner to gambling winnings. However, as a general rule, it is advisable to declare any gambling winnings obtained in a particular year on the tax returns of the subsequent year. This approach guarantees that you fulfill your tax obligations associated with your gambling income.
Can I write off my winnings?
A tax deduction, commonly known as a “write off,” is not typically applicable to recreational gamblers who are unlikely to deduct their winnings or any gambling-related expenses.
When filing your tax return as a professional gambler, you have the opportunity to deduct gambling-related expenses, similar to other self-employed individuals who can claim business costs.
Meal and travel expenses related to gambling could be deducted by professional gamblers. To illustrate, a poker player who competes in tournaments and travels extensively might include plane tickets, hotel accommodations, meal expenditures while away, and similar costs in their tax declaration.
Expenses related to research, such as reading periodicals and evaluating data, may be deducted by professional sports bettors or daily fantasy sports players. Similarly, professional online gamblers can deduct the cost of their internet connection.
With a few exceptions, professional gamblers usually do not consider the money they use for gambling as a write-off. However, in certain situations, they may be able to claim these expenses as gambling losses to balance out their declared income (refer to the information below).
Can I report gambling losses?
Individuals who engage in recreational gambling and do not classify themselves as professionals can deduct their gambling losses on their tax returns. However, to claim these losses, they are required to itemize their deductions.
In all honesty, the majority of casual gamblers won’t be inclined to itemize their gambling-related deductions. This is because itemizing would disqualify them from claiming the standard deduction while filing their taxes. In most scenarios, the standard deduction surpasses the total amount of itemized deductions.
In contrast, professional gamblers have the ability to deduct their losses without the need for itemization. They can classify these losses as business expenses, commonly referred to as “write-offs,” to effectively lower their taxable income.
It’s important to note that if you claim to be a professional gambler, it should be your primary occupation. Individuals who falsely label themselves as professional gamblers solely for tax purposes put themselves at risk of being audited.
Both recreational and professional gamblers are subject to a rule where they cannot report gambling losses that surpass their gambling winnings. Despite the fact that individuals often experience more losses than wins in gambling, tax regulations prevent losses from exceeding winnings when it comes to filing taxes.
What is a W-2G form?
The purpose of a W-2G form is to report any gambling winnings and the corresponding amount of federal income tax that has been withheld on those winnings.
Similar to a W-2 form provided by employers to disclose your earnings and the corresponding taxes withheld, this situation also involves notifying the IRS. Consequently, you become aware of what should be reported when filing your taxes, while the IRS gains knowledge of your “income” or winnings.
In the event of winning at gambling without receiving a W-2G form, it is possible to personally obtain and complete the form to fulfill the requirements. Subsequently, you can attach the duly filled form along with your tax filing.
How to pay gambling taxes in your state
Federal taxes must be paid on gambling winnings by all individuals. While certain states do not impose state income tax, the majority of states do. However, a few of these states do not require individuals to pay state income tax on their gambling winnings.
There are several options available for paying gambling taxes in states where they are required, in addition to the federal tax.
Typically, you are required to report your winnings on your state tax form by filling in the designated section labeled as “Gambling and Lottery Winnings” or a similar category. This sum is then combined with other sources of income to determine your overall taxable income.
If necessary, every state offers comprehensive guidance on the proper procedures for reporting gambling winnings.
Are gambling winnings taxed as income in my state?
The majority of states mandate that their residents pay state income tax, while certain states additionally enforce the payment of state tax on gambling winnings. It is important to note that the latter is distinct and separate from the federal tax payment on gambling winnings.
See the table above labeled “Which states require payment of state taxes on gambling winnings?” to determine if your state mandates payment of state income tax on gambling winnings.
Additional resources
- The subject of IRS Topic 419 pertains to the reporting and treatment of gambling income and losses for tax purposes.
- Please refer to page 10 of IRS Publication 529, titled “Miscellaneous Deductions,” specifically the section on “Gambling Losses Up to the Amount of Gambling Winnings.”
- “Tax on Gambling Winnings” (H&R Block)
- “Is it necessary to pay taxes on gambling winnings?”