Online Casino Winnings Taxes
What could be better than betting on a long shot at the race track, going to Vegas and pulling the slots, or playing money bingo and winning a big cash prize? Ask anyone who’s had it happen to them and they will tell you that there is absolutely nothing in the world like the feeling you get when you gamble and win. However, the taxes are another story.
Yes, all gambling income is taxable. Do online casinos report winnings to the IRS? It depends on if you’re playing at licensed US online casinos or offshore casinos AND what games you’re playing. Offshore casinos who operate outside of US jurisdiction will not report winnings to the IRS. Image: Casino.org American Tax Season Is Here The US uses a flat 25% tax rate on all gambling winnings. Taxes are applied to all gambling, including sweepstakes and other prizes. In the UK any and all winnings from gambling – either online or at betting shops – are entirely tax free and do not need to be declared as part of any tax return. This has been the case since the then Chancellor of the Exchequer Gordon Brown’s budget of 2001, when he abolished Betting Duty which had stood at 6.75%.
Online Casino Winnings And Taxes
- And yes, I claim my winnings on my tax return. Several individuals have asked me to give an overview of online gambling and taxes. Given the out-and-out lies and falsehoods that I see on the Internet, I’m going to present an in-depth guide to online gambling and taxes in the USA. Disclaimer: We are not providing legal or tax advice here.
- Whether or not you receive a W-2G from the casino, it is your responsibility to report “earned” winnings on your personal income tax form. As it does for land-based gamblers, the same applies to online casino players. Casinos do not issue a W-2G form unless your jackpot is $1,200 or more.
What could be better than betting on a long shot at the race track, going to Vegas and pulling the slots, or playing money bingo and winning a big cash prize? Ask anyone who’s had it happen to them and they will tell you that there is absolutely nothing in the world like the feeling you get when you gamble and win. However, the taxes are another story.
It doesn’t matter if you went to Vegas or Reno and hit it big, or play bingo games at the local bingo hall, what you win is considered taxable income in the eyes of the Internal Revenue Service (IRS). It doesn’t matter if you won cash, a door prize, or a big-ticket item like a car. Uncle Sam wants a slice of your pie and if you don’t pay him, you could find yourself in a bit of trouble.
Before You Gamble, Know the Applicable Tax Policies
Technically, any gambling winnings count as taxable income. If what you win is considerable enough, you are required to fill out IRS Form W-2G.This form gets filed along with your federal income tax return at the end of the year. Gambling winnings may come from one of the following:
- Slot machines
- Betting pools
- Keno
- Poker tournaments
- Pool Tournaments
- Casino games
- Lottery winnings from scratch-off, pull-tab or machine generated tickets
- Sweepstakes
- Horse or dog races
- Raffles
- Game shows
- Off-track betting
- Winnings via a Sports Book
- Bingo games played in a brick and mortar bingo hall or an online casino
The start at which gambling winnings must be reported to the IRS can vary, depending on the type of game. For gambling winnings from scratch-off or machine lottery prizes, or horse and dog track bets, payouts begin at amounts greater than $600 or an amount that is equivalent to 300 times the amount of the wager that was placed. In the case of winnings from playing bingo games or from a slot machine, anything over $1,200 is required to be reported to the IRS. If you are playing in a physical or online casino and win more than $5,000, this amount must be reported.
The general taxation rate on gambling winnings is 25% of the amount won. If you win the lottery, for example, most state lotteries will withhold this federal rate and any state taxes that may also be applicable. In other situations, an estimated tax, or what is known as a backup withholding tax, of 28% is charged instead of the standard 25%. If you win $3,000 in money bingo online, for example, you would be sent a Form W-2G from the online casino from which you won it.
If tax is withheld from your gambling winnings, you will be sent a Form W2-G from the payer.
Gambling Tax Policies for Non-resident Aliens
For anyone who is not a citizen or permanent resident of the U.S., the tax rules are a little more complicated. Nonresident aliens are required to pay tax on any “fixed or determinable annual or periodical gains, profits, and income” from U.S. sources. This would include any monies won from gambling. The tax rate can be as high as 30%.
Gambling Taxation from Winnings in Other Countries
Any citizen of the U.S. is required to report all income, no matter from what part of the world that income is received. Even with the Foreign Earned Income Exclusion (FEIE), it does not cover lottery winnings. If you are taxed in another country for your gambling winnings, the taxes paid to a foreign government are not allowed to be deducted on your U.S. income tax return.
You Can Deduct Your Gambling Losses
If you are someone who itemizes on their income taxes, it may come as a surprise that your gambling losses can be deducted. You can keep track of this by keeping all of your receipts, or you may use the Form 1040 Schedule A. This form can help you to keep track of what you win and what you lose. The amount that you can deduct on your taxes can be up to the amount of money won during the tax year.
Of course, everyone’s tax situation is different and tax laws can change from year to year. Before you file your taxes, it’s a good idea speak with an accountant or tax attorney in order to be sure of what you are legally required to pay in taxes.
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Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.
Casino Winnings Are Not Tax-Free
Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.
By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.
How Much You Win Matters
While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:
- $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
- $1,500 (reduced by the wager) in keno winnings.
- $1,200 (not reduced by the wager) from slot machines or bingo
- $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.
Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.
Online Casino Winnings Taxes 2020
Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.
What is the Federal Gambling Tax Rate?
Standard federal tax withholding applies to winnings of $5,000 or more from:
- Wagering pools (this does not include poker tournaments).
- Lotteries.
- Sweepstakes.
- Other gambling transactions where the winnings are at least 300 times the amount wagered.
If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.
The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.
It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.
Can You Deduct Gambling Losses?
If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.
The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.
What About State Withholding Tax on Gambling Winnings?
There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.
Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.
State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.
How to Report Taxes on Casino Winnings
You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.
You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.
Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.