Taxes: Do I Pay Tax on My Casino Winnings?

Kevin Parker
  • Written By Kevin Parker
  • Edited
  • Reading 6 minutes

For many people, gambling is usually nothing more than a hobby or pastime. Being taxed for that might seem rather bizarre but it is actually very important to do so. Not only does it let you contribute to public growth and development but it also lets you steer away from troubles or repercussions associated with tax-related offenses.

What we will go through in this blog post:

The State of Gambling Taxation

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Most gamblers never pay attention to the issue of taxation possibly because sometimes their winnings can be small amounts that authorities will not follow up on. However, just as it will be in the case of professional gamers, any income that one gets from gambling activities is subject to federal taxes.

The Internal Revenue Services (IRS) and several state authorities consider all winnings from wagering activities to be taxable income. This also applies to the fair market value of any item you win from gambling activities.

In this post, we are going to break down the most important things that you will need to know to avoid getting into trouble for not filing and paying your taxes. Be sure to keep a note of everything as this information will certainly come in handy at some point in your gambling adventures.

What’s Taxable?

This is often the most important question that gamblers have whenever they hear about taxable gambling income. In terms of the form of the winnings, it is worth noting that the taxable income, in this case, includes cash and non-cash winnings as well as the fair market value of any item won from wagers.

When it comes to the actual types of gambling where the winnings are taxable, the taxation laws apply to the following:

  • Casino games
  • Slots machines
  • Keno
  • Lottery games
  • Sweepstakes
  • Raffles
  • Poker tournaments
  • Off-track betting
  • Bingo
  • Horse and dog race betting
  • Gameshows

The Actual Tax Figures

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In the United States, casino or gambling winnings are generally subject to a flat tax rate of 24 percent.

However, sometimes things can be a little different for taxes from keno, bingo, and slot machines, that is, these verticals may not be subject to tax withholding in some cases. In case a player receives winnings that are not subject to tax withholding they will then have to pay estimated tax.

Things get a little more complex when the gambling winnings exceed $5,000 for certain games. Any sweepstakes, wagering pool, or lottery winnings that clock $5,000 or more are subjected to income withholding tax. For any other form of gambling, the same income tax withholding rule applies if the winnings from those games are at least 300 times the initial bet amount.

For non-cash prizes such as:

  • Paid Vacations
  • Merchandise
  • Electronic Devices
  • Vehicles

The winners have to take responsibility for paying taxes on the fair market value of each of those prizes.

Itemized Deductions

The law allows players to deduct their gambling expenses and related gambling losses if they itemize their deductions. These deductions can only be done up to the amount of the player’s total gambling winnings. It is important to note that you need to generally report your winnings and losses separately instead of reporting everything as a net amount.

Unfortunately, the expenses incurred from gambling addiction recovery programs do not qualify to be one of the deductions that players can report when filing their taxes. Perhaps this could change soon as efforts to fight gambling-related harm ramp up. If everything works out, this could one day be considered to be a medical expense deduction.

Gambling Records

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One of the other things that you will need to take note of as a gambler in the United States is the IRS’ requirement that you keep detailed records of both your winnings and losses, Form W-2G and Form 5754.

  • Form W-2G is issued by a gaming institution to a winner of their winnings is subject to a federal tax withholding.
  • Form 5754, on the other hand, is a statement by the person who is receiving the gambling winnings.

Other gambling records that you will also need to keep are such things as tickets, receipts, and payment slips among other things which can help you prove your gambling activities. Statements from the online wagering sites that you are a part of are also quite important – thankfully, many gaming operators have made these very easy to obtain.

For every win or loss, the IRS recommends that you take note of the date, type of gambling activity, amount won or lost, the details of the venue or event as well as the names of those who may be present.

Different States, Different Rules

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Federal taxes aside, state governments have also been known to impose taxes on gambling winnings. This will, however, vary from one state to the next but the general outlook is that each state will have its unique way of handling the issues of taxation of gambling income. Some do not tax gambling winnings but many of them that have legalized gambling activities will either charge a flat tax rate or base the tax rate on the amount won by the player.

That said, some states will certainly be friendlier to winners than others. For instance, Nevada which happens to be one of the most popular gambling destinations in the country does not tax winnings at all. Other states where gambling income is not taxable include:

  • Alaska
  • Florida
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

In states like California, Delaware, New Hampshire, and Pennsylvania, all casino winnings except for sweepstakes and other non-mainstream forms of gambling are taxable.

Does This Apply to Professional Gamblers?

Well, professional gamblers also have to pay their taxes just like hobbyists of casual gamers. For those who play casino games and participate in other gambling activities for a living, their gambling income is generally categorized under earned income. As such, the income is in this case taxed at the normal effective income tax rate.

What About Offshore Gambling

Several states across the country are still yet to legalize and regulate gambling activities but this does not mean that their residents are not gambling. The offshore gambling market in the United States is worth billions of dollars which makes it a pretty significant revenue stream.  As it turns out, the federal government is well aware of the situation and just as it is the case with legal and regulated gambling, winnings from offshore gambling activities are also taxable.

What Does This Mean for Me?

It is important to take your taxes very seriously even if it’s from gambling activities. Now that you are equipped with all that you are required to know about taxable casino winnings, you will want to take every measure to ensure that you comply with the laws. It all begins with keeping detailed records of all your wins and losses so that they can be useful to you when the occasion arises.

Depending on the platform that you choose to use, filing and paying taxes for your casino winnings should be a breeze.

Author: Marion Duncan