Believe it or not, gambling winnings in the United States are taxable. In an ironic twist, winners may become losers if they fail to pay Uncle Sam. Why? Because gambling income is 100% taxable according to United States tax law. According to the IRS, with topic #419 (gambling income and losses), ‘…
Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.’
When it comes to gambling winnings, these must be reported on form 1040 as other income. This is completed on line 21 of the tax return form. If the payer does not issue a winner with form W-2 G, the winnings must still be reported. When it comes to gambling losses, there is accommodation for players if deductions are itemized on Form 1040 Schedule A. However, accurate details (winnings and losses) must be provided. Residents and non-resident aliens alike are required by law to file tax returns for all US-related gambling winnings.
The range of gambling activities that qualify as taxable income includes online casino, land-based casino, and poker games, among others. In fact, it spans the full spectrum including bingo, game shows, lotteries, and horse racing. The short and sweet of it, is that in the United States gambling income is taxable, and failure to report winnings can be considered tax avoidance or tax evasion. The full range of activities encompassing gambling winnings includes Keno, slot machines, raffles, dog races, horse races, off-track betting, lotteries, and more. Typically, gambling winnings are taxed at a 25%.
- Sometimes, casinos, racinos, bookmakers, or other betting establishments may withhold tax on gambling winnings. The amount of tax withheld is generally 25%, however a 28% backup withholding tax amount may be used.
- If you win $5,000 + on gambling games such as lottery, poker, or wagering pools, you are subject to income tax withholding. Any other bets where winnings are 300 X greater than the bet amount are also subject to taxation.
- For online casinos operating in the US, it may be incumbent on the player to make accommodations for taxation reporting if the casino does not expressly manage tax-related matters. Tax avoidance or evasion is a criminal activity.
It is worth pointing out that there are certain rules in effect for people who consider themselves, or are considered professional gamblers. Most people are casual players, and do not engage in gambling as a career activity. However, for those who are gamblers by profession, gambling income will then be taxed at the effective income tax rate. This means that all gambling-related activity and attendant incomes will be listed (alongside expenses) on a Schedule C form and not a Schedule A form. Gambling wins and losses must be reported on tax return forms and are due by April 15 of every year.
While the tax authorities are not necessarily interested in small sums of money won in NCAA betting activity, they likely will make an issue of unreported gambling winnings. It is not generally public knowledge that gambling establishments such as casinos, racetracks, and sports books automatically report winnings above certain thresholds. For example, scratchcard tickets, lottery tickets and horse racing activity that results in winnings greater than $600 are automatically reported. Alternatively, the 300X threshold rule applies.
A Quick Summary of the 3 Most Important Gambling-Related Tax Tips
When it comes to casino card games like blackjack, baccarat, roulette, bingo, and slot games, the threshold required by the IRS is $1,200. Skill-based games like poker have a $5,000 threshold reporting limit, and Keno has a $1,500 limit. It’s important to note that these thresholds are not per win, they are per annum. So, if your total accumulated winnings during the year are greater than or equal to these threshold figures, you will be liable for tax payments on your winnings. The following 3 points will serve you well with gambling winnings and losses during tax season:
- There are thresholds for different types of gambling games. Once you reach the threshold figure, you are liable to pay taxes on your winnings.
- If you keep accurate records of your gambling wins and losses, you can claim losses with W-2 G forms, bank withdrawal statements, credit card statements, and losing tickets.
- If you are a professional player, your gambling winnings are taxed at the standard rate. If you earn a living from gambling, you are considered a professional player/gambler.
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