• Do You Pay Taxes On Gambling Winnings In Nevada
• Do You Pay Taxes On Poker Tournament Winnings Payout
• Do You Pay Tax On Gambling Winnings In Australia

More Articles

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.

You are required to pay federal income tax on all gambling winnings. The federal income tax rate is the same as for salaries. The rules for state income tax vary from state to state. Except for income tax, you do not pay most other taxes, such as social security tax, medicare tax, state disability, etc., on your gambling winnings. $600 or more in gambling winnings (except winnings from bingo, keno, slot machines and poker tournaments) and the payout is at least 300 times the amount of the wager Any other gambling winnings. If you win over $5,000 from a country without a treaty, 30% of the gross winnings will be withheld for taxes. Kondler details a few other hassles with foreigners paying taxes in the US.

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.

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:

Do You Pay Taxes On Gambling Winnings In Nevada

• 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.

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.

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.

Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.

State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.

How to Report Taxes on Casino Winnings

You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.

You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.

Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.

Read More:

We have talked about poker players and taxes before. However, questions remain for many players. So, USPoker.com recently spoke with Nathan Rigley, lead tax research analyst with H&R Block.

His words rang true as advice for every poker player. Whether you’re a reg at a local card club, a top touring pro or someone in between, you need to consider your tax obligations when you play poker.

All winnings are taxable

First and foremost, all gambling winnings are taxable — no matter the amount.

“Just because a taxpayer doesn’t receive a tax form does not make the winnings tax-free,” Rigley said. “Taxpayers still have a responsibility to report their prize on their tax return as ‘other income.’”

Those winning a larger amount at a casino are likely to receive a tax form, and the IRS will also receive that form. Not reporting it can have some ugly consequences, including:

• Audits
• Penalties
• Interest

Don’t leave anything to chance and don’t try to conceal. Report those winnings to avoid a lengthy, and uncomfortable, visit with the IRS.

Keeping records helps in the long run

The IRS recommends gamblers keep an accurate diary or records to substantiate wins and losses on a tax return. For poker players, that includes sessions at the tables, buy-ins and amount won or lost.

You read that correctly; record losses because you can be deduct them against winnings. Winners can deduct losses, but only as much as the amount won.

For example, a player who wins $200,000 in a big Sunday tournament online must report those winnings to the IRS. Let’s say that, in the same year, that same player lost $32,000 worth of tournament buy-ins, but profited $9,000 at cash games.

Altogether, this player will have total taxable winnings of $177,000 ($200,000-$32,000+$9,000). So, losses can help players send less of their cash to the US Treasury.

Planning is important

When it comes to tracking wins and losses, here’s what Rigley recommends to include in gambling records:

• Date and amount wagered, including tournament buy-ins
• Name and location of betting or tournament
• Amount won or lost

Obviously, online poker makes this task easier. Players can review buy-ins and wins and losses easily.

However, don’t merely rely on the poker software to keep your records. It is beneficial to review often and keep track independently.

Bettors should also keep verifiable documentation of losses and expenses including:

• Buy-in tickets
• Canceled checks
• Credit card records

As a Boy Scout, when it comes to taxes, be prepared.

Remembering expenses

This year, tax filers have some new rules. For poker players, the Tax Cuts and Jobs Act changed many aspects related to itemized deductions.

That includes the elimination of miscellaneous deductions that were subject to a 2% floor of adjusted gross income.

“This has been impactful for many taxpayers,” Rigley said. “Luckily, the deduction for gambling losses, though a miscellaneous deduction, was not subject to this floor.”

So, poker players can continue to claim gambling losses as an itemized deduction toward their gambling income. However, it is important to stay abreast of any changes to the tax code each year.

Are there differences in sports betting, poker, and other gambling?

To the IRS, there generally is no difference in various forms of gambling. The only difference may be if a taxpayer treats gambling as a sole means of earning a living.

Bear in mind, however, that the IRS is not a law enforcement agency. Even those who wager where it may not be legal are still expected to report winnings in their tax returns.

“Income from illegal gambling is treated exactly the same as those who participate in legal gambling,” Rigley says. “Gambling doesn’t make the winnings tax-free. Taxpayers who make illegal wagers and win still need to report the income on their tax return. If the taxpayer itemizes deductions, they can still deduct the loss to the extent of gain.”

Pros should treat poker as a business

Full-time players or those who view the game as more of a career have some different benefits and requirements. For instance, a pro player may be able to file as a business with a Schedule C form.

These players can also deduct expenses like a business or someone who works for himself. So, things like travel expenses, meals when at tournaments, and other business-related expenses may qualify as deductible for tax purposes.

However, filing as a business also has some additional requirements. Notably, players are potentially subject to self-employment tax and possible quarterly estimated payments. So, keeping good records and receipts is important.

Do You Pay Taxes On Poker Tournament Winnings Payout

There’s one additional requirement under the new tax reform. Players can no longer deduct non-wagering business expenses in excess of net wagering income. That keeps players from claiming a loss.

Save a chunk for the IRS

Players who score big in an event are advised to set a big piece of that cash aside for future taxes.

“We always suggest that the first check they should write is the IRS for an estimated payment on the taxes they will owe on those winnings,” Rigley says. “This is essentially a deposit toward your tax liability.

“The reason we suggest this is that it helps to avoid any underpayment penalties for failing to deposit enough taxes throughout the year, and psychologically it seems easier to write that check when the income is new rather than be hit with the balance due down the road when the return is filed.”

Do You Pay Tax On Gambling Winnings In Australia

A player may also want to consider investment vehicles such as a Roth IRA or other options to lower their tax burden. An IRA also helps players plan for retirement and possible lean times.

Filing your taxes and writing a check to the IRS is never fun. However, making a concerted effort throughout the year can help take the sting out of the process.