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The phrase “the house always wins” illustrates how the odds are stacked against you in the casinos on the Las Vegas Strip. However, if by some chance you are victorious, the IRS will be there to take its chunk. It turns out there are two “houses” when it comes to gambling, and the odds favor the IRS too.
Keep in mind that we are not tax professionals. This article isn’t a gambling or lottery tax calculator and should not be considered legal advice.
We can, though, provide information on reporting winnings, claiming losses, and what could happen if you fail to report gambling earnings.
- Show Full Guide
How Gambling Winnings Are Taxed
The IRS guidelines state that gambling income is defined by the following: winnings from lotteries, raffles, horse and dog races, and casinos, as well as the fair market value of prizes such as cars, houses, trips or other non-cash prizes.
That being said, those particular items do not constitute the full range of gambling winnings.
All individuals are subject to the flat rate.
The federal withholding tax for US citizens is 24% on a W-2G form, and for non-US citizens, it is 30%.
Check your state for specific tax percentages, but here’s a brief overview. According to the Tax Foundation, Nevada and Iowa have the lowest rate of tax on gambling winnings, at just 6.75%. Michigan also has a low tax rate, at 8.4%, and Indiana stands at 9.5%. Several states have a 10% tax rate, and at the higher end are New Hampshire, New York, and Rhode Island, at 51%.
The legal status of gambling differs throughout the US as decisions regarding legality are made at a state level. Casino gambling is only legal state-wide in Nevada and Louisiana, while it is legal in a handful of other states, but limited to small areas within the state – think Atlantic City in New Jersey. The online gambling picture is even more complex with 37 states, including California and New York, imposing complete bans. Many states also have legislation to change the legal status of gambling, so we advise checking locally if you are unsure.
What Taxes Do You Have to Pay on Gambling Winnings?
The taxes on gambling winnings generally begin with $600 or more, coupled with 300-1 odds.
If you win $600 or more gambling, the casino or sportsbook (specified as “payer”) must issue a tax form W-2G.
When reporting your gambling winnings on form W-2G, federal taxes are withheld at a rate of 24%, even if you fail to give the payer a tax identification number.
Remember, taxes are due on winnings, whether from an online casino or the real thing.
Tax withholding is activated when your winnings, minus your original bet, reach more than $5,000 from lottery/betting pools/sweepstakes and when your winning bet is at 300-1 or better odds.
If you have won more than $5,000, the payer may be required to withhold 28% of the proceeds for federal income tax, increasing to 31% if you fail to provide the payer with your social security number (SSN).
Slots, Video Poker, and Keno
All slots and video poker winnings of $1,200 or more activate the need for a W-2G form.
For video keno, however, the IRS site has the triggering dollar amount at $1,500.
Table Games
Since any table game is defined as a “game of skill” in the eyes of the US government, a W-2G form is issued to any winner at odds of 300-1 or more, AND winning at least $600.
With craps, blackjack, and roulette winnings, the customer is not issued a W-2G form, no matter the winnings.
The customer, of course, is still liable for taxes, given the guidelines in place when visiting the casino cage to collect your money.
That process demands your SSN and current ID.
Poker
Similarly, poker cash games do not require W-2Gs regardless of the amount won.
But again, minus your buy-in, your winnings exceeding $5,000 will require the payer to complete the tax paperwork with the customer.
Sports Betting
The $600/300-1 rule applies to sports betting taxes. A W-2G is issued if your winnings reach $600 AND the payout is 300-1 or better. There is no specific taxes on sports betting.
At the $5,000 winnings level, the payer takes 24% immediately as a tax withholding.
Horse Racing
The 24% withholding is applied when winnings reach $5,000, and the amount won is 300-1 or better (300x the amount wagered).
Lottery
You don’t have to win the big jackpot to owe lottery taxes: The typical federal tax on lottery winnings is around 24% when winnings exceed $5,000, and the lottery agencies withhold it.
If your winnings push you into a higher tax bracket, you will probably have to pay additional taxes.
A large prize, for example, may put part of your income into the 37% tax bracket. Sites like Nerd Wallet have a handy lottery tax calculator to make your life easier.
How Much Money Can You Win Gambling Without Paying Taxes?
Not every category of gambling winnings is regulated the same, so use the available resources and tools to determine those requirements.
Whether your gambling winnings are $1 or $1 million, you must report them to the IRS.
Will the IRS Know if I Don’t Report My Winnings?
The IRS has the autonomy to discover unreported gambling winnings, so it’s best to pay the taxes.
Find the reporting spot under the “other income” section on the traditional 1040 tax form to avoid running into trouble.
Casinos and sportsbooks have W-2G forms, and most will give you one, but if they don’t — and top online sportsbooks often don’t — it’s still your responsibility to report winnings that reach the taxable thresholds.
Regardless, casinos are required to report winnings at or above the thresholds to the IRS.
There are penalties for not reporting gambling winnings, including fines and even criminal prosecution.
The IRS could scrutinize your income with help from W-2G forms and monitor bank deposits.
If you are found to be hiding more than $5,000 or 10% of your final tax responsibility, the IRS can level a 20% financial penalty.
How To Report Your Gambling Winnings
Unless your winnings trigger the W-2G form, you would report the winnings on your tax form, line 21, form 1040.
If you are opting to itemize deductions, use line 27, Schedule A of the 1040 form.
For deductions, make sure you can use receipts, bet slips, statements, or other records showing winnings and losses.
For more information on this kind of record keeping, the IRS suggests you refer to Publication 529, “Miscellaneous Deductions,” or Publication 525, “Taxable and Nontaxable Income” under the “Forms & Pubs” section.
Can You Claim Back Losses?
You can claim losses on your gambling winnings by using deductions on your tax form.
You can also claim certain losses, such as expenses to and from the casino, if you itemize taxes rather than take the standard deduction.
(This is with the caveat that these deductions don’t exceed gambling winnings claimed. You can legally claim your losses only equal to your reported winnings.)
Professional Gamblers Are an Exception
If you identify as a professional gambler, your profits are treated differently.
That’s because gambling profits are your primary (self-employed) source of income, and therefore, your gambling taxes follow a different formula.
You would report gambling winnings/losses on Schedule C. You can also deduct business-type expenses such as travel and seminar/educational expenses.
You also pay self-employment tax on net winnings.
The Bottom Line
First, when taking the steps to report your gambling winnings on your tax return, itemizing your deductions and considering your expenses, it’s a good idea to consult a tax professional to ensure you’re on the right path.
You must report those winnings as income, including such activities as bets and winnings from lotteries, horse racing, dog racing, casinos, raffles and reporting the fair market value of prizes won. These include cars, houses, trips, etc. Basically all those non-cash prizes.
Remember: you are expected to pay taxes on gambling winnings in the US, so don’t get caught out.
