Taxable Gambling Income
Before we dive into the specifics, let’s first cover the basics. According to US law, any income from gambling is considered taxable. This includes winnings from wagering on sports, such as horse racing, or playing any games at land-based or best rated online casinos for US players. Material prizes that have been awarded to you are also taxed, based on their fair market value. Additionally, games like the lottery, bingo or even game shows, are also subject to tax. No matter which you choose on your next wagering experience, we recommend keeping a journal and all gambling-related documents like receipts, payment slips, tickets etc. This will, in turn, help you on a later stage, if you’d like to deduct your losses.
In general, the federal tax is a flat 25%, which is instantly withheld by the payer of your winnings. For foreigners visiting the US and gambling, the amount withheld is 30%, and there’s no possibility of deducting losses. Luckily, taxes on gambling are not progressive like income taxes. Still, based on a few different thresholds, and depending on the game, you’ll be provided with a W-2G form to fill out, before you receive payment. Even if the payer doesn’t provide you with a form, this doesn’t allow for you to not report gambling winnings to the IRS.
Thresholds Subject to Gambling Taxes
|$600 or 300x Wager||Any|
|$1,200 or more||Bingo and Slots|
|$1,500 or more||Keno|
|$5,000 or more||Poker Tournament|
As a gambling beginner, you may be wondering how much you can win in a casino without paying taxes. Technically speaking, no matter how much you win, you’ll always need to pay taxes. There are however different winnings thresholds which may alter the way you report and pay said taxes. Below, we’ve compiled a list of the different criteria, which mandate that the payer of your prize money, provide you with a W-2G gambling tax form. Detailed instructions on how to fill out the form can be found on the official IRS website.
In the case of winning more than 300x the initial bet or at least $5,000, the payer of the amount is legally obliged to withhold taxes for any winnings, minus the bet. In other words, provided your prize money matches these criteria, you’ll be paid your winnings, minus the 25% tax. At the time of filing your gambling tax form with the payer, you need to provide them with your Tax Identification Number (TIN). Otherwise, they’ll have to withhold 28%.
In the end, even if the casino files a W-2G for you, this doesn’t mean that you don’t have to report any income from gambling come tax time. Keep your form and make sure you report both winnings and tax withheld already. Something you should be aware of is that casinos aren’t required to withhold taxes on a certain number of games, no matter the winnings. Such games include blackjack, craps, and roulette.
What Happens If I Don’t Report My Gambling Winnings?
Based on the information we’ve already shared, you might have already come across a certain loophole within the system. Any winnings below $600 aren’t necessarily reported. In this case, the lack of a paper trail such as the W-2G gambling tax form makes it almost impossible for the IRS to track any undeclared gambling winnings.
This opinion is commonly shared between accounting firms across the US. However, depending on the total amount won and lost, you may benefit from reporting all your gambling-related income. Losses can be reported and lead to a tax break, but you’ll be required to keep every possible document, indicating how much you’ve wagered and how much you’ve lost. So, don’t throw away that losing ticket just yet.
Here are some of the documents, which could help you, should you happen to want to deduct your losses:
- Slots – Record all wins by date and time, including the slot machine number. Some places even offer printouts of your annual transactions.
- Table Games – Table number and casino credit card data.
- Bingo – Track all your games. Keep a record of the cost of the bingo sheets bought and how much you’ve won.
- Racing – Keep a record of races, entries, amounts wagered, collected winnings and losses on tickets.
- Lottery – Write down the date of purchase of your tickets, list all your winnings and losses.
Once you file for a deduction, you’ll need to keep all of your records, tickets and other relevant documents, at least for 3 years, in case of an IRS gambling losses audit. At the end of the day, it’s your responsibility to report any winnings. Failure to do so, depending on the amount, could lead either to a surprise audit and legal action, or simply living with a guilty conscience. If you do, however, like to reduce the amount of taxes paid, you can opt for online casinos. We’ve compiled a list of eligible websites for gambling online in the USA. While no amount will be withheld directly, while withdrawing your winnings, you’ll again need to report your winnings when filing your taxes.