How Are Gambling Winnings Taxed?
Most people don’t think about taxes on their way to the casino. But what might seem like nothing more than a fun night in Las Vegas actually carries significant tax consequences if you win. As is often the case, the federal and state governments single out casino winnings for unique taxes of their own. Failure to properly report your haul can result in serious penalties and headaches you just don’t want.
Follow these rules to stay on the safe side:
How Much You Win Matters
Gamblers are lucky in that casino taxes are not progressive like income taxes are. That is, you will owe the same percentage to the IRS on a $100,000 jackpot as a $10,000 one. Yet it’s important to know the thresholds that require reporting. As Bankrate.com explains, winnings in the following amounts must be reported:
- $600 or more at a horse track (if that is 300 times your bet)
- $1,200 or more at a slow machine or bingo game
- $1,500 or more in keno winnings
- $5,000 or more in poker tournament winnings
All of these require giving the payer your Social Security number, as well as filling out IRS Form W2-G
to report the full amount won. In most cases, the casino will take 25 percent off your winnings for the IRS before even paying you. Don’t get any crafty ideas about cutting Uncle Sam out of the transaction, either. According to Bankrate, this entitles the casino to withhold up to 28 percent of your winnings.
Games exempt From Form W2-G
Not all gambling winnings in the amounts above are subject to IRS Form W2-G. According to CasinoGaming.com
“W2-Gs are not required for winnings from table games such as blackjack, craps, pai gow, baccarat, and roulette, regardless of the amount.”
Note that this does not mean you are exempt from paying taxes or reporting the winnings. Any and all gambling winnings must be reported to the IRS (discussed in more detail below). It only means that you do not have to fill out Form W2-G for these particular table-based games. No reason is given; that is simply the decision the IRS made.
Reporting Smaller Winnings
Even if you do not win as much as the amounts above, you are still legally obligated to report. This is done on Line 21 (“Other Income”) of Form 1040. This is also where you would report any awards or prize money you won during the year in question. Yes, even if you only win $10 you still technically have to report it (even if the casino didn’t). Gambling income plus your job income (and any other income) equals your total income.
Fortunately, you do not necessarily have to pay taxes on all your winnings. Instead, if you itemize, you can offset taxes owed on your winnings by reporting any losses you incurred as well. This would be done on Line 28 (“Other Miscellaneous Deductions”) on your Schedule A
. You are allowed to claim as much as the total amount won that appears on 1040, which would eliminate your taxable gambling income. Just be sure any deductions taken this way (in combination with other itemizations) are higher than the standard amount. Otherwise it would make more sense not to itemize, even if it meant foregoing your gambling loss deductions.
What if You Win the Money at an Indian casino?
Gamblers often inquire about taxes on money won at an Indian casino. Some assume that because Indian reservations have unique tax arrangements with the federal government, this somehow must extend to gamblers on their property. Sadly, that is not so. The IRS does not care if you won the money on Indian land, the Las Vegas strip, or anywhere in between.
If the casino hands you a W2-6 or 1099, the IRS got one too. Technically, this applies even at an illegal gambling hideout in someone’s basement. You are legally obligated to report income from illegal activities as taxable income. While we doubt any of our readers are deriving illegal gambling profits, it does illustrate how pervasive and all-encompassing gambling taxes are.
What About State Taxes?
You didn’t think you were getting off that easily, did you? In addition to federal taxes payable to the IRS, many state governments tax gambling income as well. Unfortunately, states have their own unique formulas and rules for gambling income. Some levy no gambling taxes at all. Others charge a flat percentage, while still others ramp up the percentage owed depending on how much you won.
When in doubt, refer to your own state’s policies before gambling.