There are two IRS forms you must complete to report gambling winnings: the U.S. Individual Tax Return 1040 and IRS Form W-G2 Certain Gambling Winnings. All profits from gambling are subject to a 24% gambling tax. However, some sources of gambling winnings are automatically subject to withholding tax. All winnings that you realize in a casino are taxable as income, both on the state and federal levels. So, you should be reporting those wins on your annual tax returns. Though many people scoff at the notion of reporting cash income to the government, it counts the same as income from a check or direct deposit in the eyes of the taxman. Instead, gambling institutions (casinos, race tracks, sportsbooks, etc.) have thresholds that determine when they issue you specific tax forms. To put it simply, whether you win $100 or $10,000, you need to pay taxes on those winnings. In most cases, federal taxes on gambling winnings are 24%.
When you gamble, you’re probably only focused on winning in the moment. You don’t think about what the government might take off the top of your wins.
(a) Withholding obligation - (1) General rule. Every person, including the Government of the United States, a State, or a political subdivision thereof, or any instrumentality of any of the foregoing making any payment of “winnings subject to withholding” (defined in paragraph (b) of the section) must deduct and withhold a tax in an amount equal to the product of the third lowest rate of.
Of course, the US federal government always wants a cut. It demands 24% of your winnings through federal taxes.
However, states vary on how they tax gambling income. Some are much worse than others due to their high rates.
Tax On Gambling Winnings Usa Online
Casino Gambling Taxes by State
The following guide covers seven states that want a big chunk of your winnings. It also discusses common questions and topics regarding gambling and taxes.
The California casino scene is a thriving land-based gambling industry. It offers 62 tribal casinos, 88 card rooms, and over a dozen horse tracks.
That said, California is definitely a good vacation spot due to its weather and numerous gaming options. But you might take pause on visiting here when considering the extreme tax rate.
California taxes gambling wins as normal income. It collects anywhere from 1% to 13.3% of your winnings. The 13.3% is the highest state tax rate in the US.
Iowa boasts casinos, poker rooms, and sports betting. It charges a 5% flat tax on winnings earned in the Hawkeye State.
Minnesota offers a wide range of charity gambling establishments and a lottery. The Gopher State may not provide massive Vegas-style resorts, but it does give you some options.
It taxes gambling according to four income brackets (based on married people’s income):
- 35% ($0 to $39,410 annually)
- 05% ($39,410 to $156,570)
- 85% ($156,760 to $273,470)
- 85% ($273,470 and above)
You’ll likely fall into the 5.35% bracket if you do profit through gambling. But if you win really big, you’ll need to deal with the large 9.85% rate.
Gambling in New York has grown within the past decade. Its Expanded Gaming Act has added commercial casinos on top of the existing tribal establishments.
You can also enjoy lotteries and poker here too. Assuming you win, though, then you must ante up between 4% and 8.82% for state taxes.
The Beaver State offers lotteries, charity gaming, horse racing, and tribal casinos. It provides more than enough gambling options for its 4.22 million residents.
Oregon doesn’t worry about taxing wins worth less than $600. However, it does impose an 8% tax on winnings worth over $600.
Vermont features a unique tax structure that varies based on your winnings. You’ll pay a 6.72% rate on wins worth less than $5,000, and 6% on wins worth over $5,000.
Wisconsin features 22 tribal casinos and lotteries. The Cheese State requires up to 7.65% in taxes on gambling winnings.
Should You Avoid States With High Gambling Taxes?
You don’t necessarily need to avoid states with high gambling taxes—especially when you’re interested in a certain casino or sportsbook. However, you should keep this matter in the back of your mind.
Of course, you also want to take other factors into account besides taxes. Here are aspects to think about when determining what state you’ll gamble in:
- Convenience/distance – You don’t want to drive for hours just to avoid gambling taxes.
- Quality of gambling venues – Playing at the best casinos/poker rooms/sportsbooks can make dealing with high stakes worthwhile.
- Availability of regulated online gambling – You may be focused on using legal online casinos and betting sites above all.
- Your preferred stakes – You probably don’t need to worry much about higher taxes if you’re just playing quarter slots or $5 blackjack.
What If You Don’t Live in the State Where You Win?
Gambling over state lines causes confusion on where to pay taxes. Do you pay your home state or the one where you win?
Typically, you cover taxes in the state where the winnings occur. Your home state, meanwhile, will give you a tax credit for whatever is paid to the other state.
Here’s an example:
- You live in Oregon near the California border.
- You cross the border and buy a lottery ticket at a CA gas station.
- You win a $1 million prize.
- As per California’s tax laws, the $1 million payout is subject to the highest 13.3% rate.
- You pay $133,000 to the Golden State.
- Oregon only features an 8% tax rate on large gambling wins.
- Therefore, you owe nothing to the Beaver State.
Don’t Forget Federal Taxes
Some states don’t require you to pay any taxes on gambling winnings. These states include:
- New Hampshire
- South Dakota
You must pay federal taxes on wins no matter what—even if you live in a state with no gambling taxes. Again, Uncle Sam wants 24% of your winnings.
This percentage is already significant. It becomes even more noteworthy in a state like California, where you could pay up to a 37.3% total tax (24 + 13.3).
You report gambling wins under the “other income” on Form 1040. The government expects you to report winnings even if you earn just $1.
Of course, you can almost assuredly get away without reporting a tiny payout. However, a gambling establishment requires you to fill out a W-2G form on big prizes.
Casinos, poker venues, and sportsbook issue W-2G’s under the following circumstances:
- $600 and above for horse gambling and sports betting wins worth 300x your stake (e.g. $3,000 win / $10 bet = 300x).
- $1,200 and above for slots and video poker wins.
- $1,500 and above for keno wins.
- $5,000 and above for poker-tournament wins.
Remember to Deduct Your Casino Losses
The IRS wants you to report all gambling winnings under any circumstance. State governments that tax gambling payouts expect the same.
However, you can deduct any losses incurred as well. You itemize deductions in a different section of your tax form than where the other income is reported.
Your deduction will be subtracted from whatever you win. Here’s an example:
- You win $4,000 at a casino.
- You lose $3,000 while winning this amount.
- You must report the full $4,000 under “other income.”
- The $3,000 goes under itemized deductions.
- $4,000 – $3,000 = $1,000.
- You’d pay the relevant tax rate on $1k.
More on Itemized Deductions
Itemized deductions constitute expenses that you spend to win money. They differ from a standard deduction, which is basically a lumpsum that’s subtracted from your income.
Standard deductions are easier to deal with. Unfortunately, you must use the itemized variety when concerning gambling.
If you’re an amateur gambler, meals, hotel stays, entertaining, and gas/plane tickets don’t count as deductions. You must be a professional gambler to deduct items like these. Instead, you can only count what you spend on gambling.
Keep Casino Gambling Records
You should keep track of your gambling winnings and casino bankroll as best you can. This way, you have evidence just in case the IRS audits you.
When keeping records, you want plenty of information. Here’s an example of five important things you can jot down in your records:
- Type of gambling/game
- Date of gambling session
- Location of the sportsbook/poker room/casino
- Bankroll at the start of the session
- Bankroll at the end of the session
In addition to tracking this info, you should also hold onto other documents that you receive. Bank statements, betting tickets, check copies, and W-2G forms are examples of documentation.
What If You Don’t Pay Taxes on Gambling Winnings?
You may be tempted to avoid reporting winnings from gambling—especially if the money is insignificant. You’ll likely get away with doing so provided you haven’t won big enough to receive a W-2G form.
Of course, I don’t advise failing to report gambling winnings. But you definitely don’t want to avoid reporting wins after receiving a W-2G.
A gambling establishment sends a W-2G copy to the IRS. The latter can easily check this information with their software.
If the IRS catches you not reporting taxes, they’ll probably just send a letter and fine you. However, they can take further action if you refuse to cover the taxes.
Claiming gambling winnings on your taxes varies greatly from one state to the next. Some don’t charge you a dime while others level a large amount.
Of course, you may not really care about the state tax beforehand. If you do win, though, you’ll feel the sting in a state with a high tax rate.
You don’t necessarily need to drive hours away just to avoid high taxes on winnings. However, you might consider taxes if you live near the border of two or more states.
California, Minnesota, New York, Oregon, and Wisconsin are currently the five places with the highest rates. If possible, you should avoid these states when gambling for mid or high stakes.
Gambling is fun. Taxes are not. Unfortunately, the two have to go together for anything to happen.
The truth of the matter is that for states like Michigan, the only real reason to legalize any form of gambling is the opportunity for tax revenue. Whether it be to pay for schools, roads, or some other unspecified project, most governments are always on the lookout for a new revenue stream.
Paying any taxes stings, to be sure. However, it’s important that you know how and when the taxman might come when you visit one of Michigan’s casinos. So, here is a guide for how taxes apply to Michigan gambling.
What is taxable in Michigan?
Throwing money around in a casino rarely seems like an official transaction. Whether you win or lose, the final disposition of your chips can often feel like a stitch in time.
Unfortunately, it’s not. All winnings that you realize in a casino are taxable as income, both on the state and federal levels.
So, you should be reporting those wins on your annual tax returns. Though many people scoff at the notion of reporting cash income to the government, it counts the same as income from a check or direct deposit in the eyes of the taxman.
Failure to report your gambling income could, in theory, land you in hot water with the Internal Revenue Service (IRS) or the state of Michigan’s tax office. In practice, those entities are unlikely to audit someone over a few hundred or thousand dollars, but that doesn’t mean that they can’t or won’t do so.
Also, please take note that non-cash winnings, like cars, boats, or other objects that you may win at a casino are subject to taxes too. The value that has transferred to you because of the win has increased your financial position, and the government wants its share of the loot. As a side note, game show prize winners have to do the same thing.
What taxes will I have to pay in Michigan?
Now that you’ve steeled yourself to the reality of giving away a portion of your sweet winnings to the government, you may be wondering who and what you’ll be forced to pay. As indicated earlier, you will be compelled to pay percentages to both the IRS and the state of Michigan for your wins there.
The IRS, for its part, will demand that you fork over 25% of your winnings to the feds for your troubles. This rate applies to wins of any size, so even if you win just a dollar, you’ll still need to throw a quarter at the taxman.
In addition, Michigan law requires that you pay an additional 4.25% to the folks in Lansing for having played in their casino. Even though the casinos themselves are the main wellspring of tax income for the state lawmakers, gamblers do not escape unscathed.
For smaller wins, you’ll essentially be on your honor to report your gambling winnings to the appropriate authorities. As stated earlier, it’s not legal just to stick the money into your pocket, but there’s no mechanism or watchful eye to force your compliance as you exit the casino.
That lack of oversight extends to wins up to $5,000. However, at that point, the casino itself is bound to collect 25% on the government’s behalf before it releases your winnings to you. Give the cage your name and Social Security number, and your tax bill will be settled before you leave the property.
Obviously, losing 25% off the top is a kick in the teeth, but please don’t get any ideas about simply withholding your name and SSN. As it turns out, anyone who refuses to provide their information (for any reason) will be subject to an additional penalty of 3%.
Neither option is good, but bear in mind that the casino is not going to keep a cent of that money that it withholds. So, you might as well go along with it and live to fight another day.
If I never win $5,000, will I ever have to pay taxes upfront?
If you’re not a high roller, the idea of ever reaching the federal threshold for casinos to report wins might seem far-fetched. After all, if you usually bet in $5 or $10 increments, it’s quite unlikely that you’ll realize a win that exceeds $100, let alone $5,000.
So, you may be wondering if you’d ever have to worry about the feds ever knowing that you were gambling. Unfortunately, there are some other scenarios in which the casino might have to report your win to the IRS before handing you the proceeds from your hard-fought victory.
A casino must report a win to the IRS with Form W-2G if any of the following events occurs:
- The total winnings, or combined bet and profit, on a slot machine exceed $1,200.
- A player’s keno profit on a game is more than $1,500.
- A poker player wins more than $5,000 in a tournament.
- A game’s profit is more than $600 and is thirty times or greater than the bet amount.
Now, filing this form does not mean that the casino has to collect from your winnings automatically. However, since the government will soon be aware of your win, it would be foolish to omit it from your return. So, make sure to keep your copy of the form for your records.
The bottom line is that if you have a memorable win in a casino, it’s quite likely that the government wants to remember it, too.
How do I report my winnings?
It’s understandable that you might feel disappointed about having to pay taxes on your winnings. Nevertheless, in most cases, you’ll bite the bullet and decide to file. So, here’s how to do that.
As is the case for essentially anything to do with the IRS, there are forms to fill out. The first thing to do is report the income on the IRS Schedule 1, which is the form for additional income and adjustments to income.
On that form, look for Line 8 in Part I, which is entitled “other income.” Here is where you will list your winnings and their source. “Gambling” or “casino” are fine for explaining from where the money came in most cases, although you can be more specific regarding the casino and date if you’re worried about attracting attention.
Once you’ve entered the information onto your Schedule 1, you’ll need to put the same total onto line 7a of your regular tax return. You will then be able to add the winnings into your overall taxable income.
By the way, your Schedule 1 is also the place to list various types of deductions, like certain business expenses or student loan interest payments. So, make sure that you don’t miss out on all the different ways to knock down that taxable base.
Can I report gambling losses in any way?
Of course, gambling comes with the inherent chance of losing. However, you could understandably think that it seems unfair that the IRS only cares about your winnings. You may wonder if there’s a way to claim gambling losses on your taxes.
As it turns out, you can.
The IRS provides Schedule A as a form to claim various deductions. Although there’s no line expressly for gambling losses, you can list your setbacks in Box 16 – Other Itemized Deductions to claim them.
Now, there are two rules that go along with claiming casino losses on your tax form. The first, and most important, is that you cannot claim losses in excess of your claimed winnings.
So, if you list $1,000 in gambling winnings on your Schedule 1, the maximum that you could claim as losses on your Schedule A would be $1,000. If you had a bad year at the casino (as many of us do), the IRS does simply allow you to write off the loss as a deduction against your taxable base, unfortunately.
The other rule is that you must be able to prove your losses in some kind of meaningful way in order to claim them. It is vital that you keep records, receipts, and other documentation to show the losses, or the IRS might not accept the deduction as valid.
After all, that might be a handy way to offset your winnings from the year and avoid taxation, so the IRS has to be sure that you took the beating you claim to have suffered. The chance that the agency will take a harder look at you will increase as the dollar amount goes up, so if you’re a bit of a high roller, it’s a good idea to keep a paper trail for yourself.
If you’re thinking that record-keeping might be a pain, you can possibly make things easier by using your loyalty or membership card at your casino of choice when you play. Since they award you based on your play, they keep records of your play. It shouldn’t be too difficult to acquire a copy of your history from the casino.
For your Michigan tax return, it is not possible to claim any kind of losses as a deductible expense. However, the state does allow you not to report the first $300 you win on bingo, poker, or other games from your total household expenses.
Do I have to pay taxes if I don’t live in Michigan?
It’s pretty clear that you have to pay taxes to Michigan if you’re a Michigan resident. However, you may be wondering if you’re still on the hook for the taxes if you’re just visiting from out of state.
Unfortunately, you are still bound to pay taxes to Michigan for your gambling win as a nonresident. As is often the case, there’s even a form for that. Worse yet, you will also have to report your winnings on your return for your own state, assuming that your state requires an income tax.
However, there are a couple of bits of good news. First of all, the states nearest Michigan (Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin) have reciprocal agreements with the Great Lake State regarding earnings that you incur in Michigan. If you live in one of those six states, you are not required to file a nonresident return in Michigan.
The other ray of sunshine is that there is, in fact, a tax credit that you will be able to claim on your home state’s return that will offset the taxes you paid in Michigan on your winnings. So, even though you had to fork over to a state in which you don’t live, you don’t have to pay double tax on the windfall. Although states are happy to collect tax revenue, they correctly realize that having to pay tax twice on the same win might lead citizens to decide it’s not worth the effort to play.
Do I have to pay taxes if I’m part of a group?
Tax On Gambling Winnings Usa 2020
In many things, there is strength in numbers, and gambling is no exception. It’s not uncommon for a group of friends to pool their money so that they can roll a bit higher than they would individually. Whether they’re throwing in for a slot machine or on a lottery ticket, groups of people can often find themselves with a claim to a significant amount of winnings.
Unfortunately, taxes remain one of life’s surest things, and group wins are subject to taxation just as much as individual wins. As expected, there is a form for that.
If your group of friends scores big, you will need to fill out IRS Form 5754 to report the winnings for tax purposes. One of the group will have to designate himself or herself as the primary winner, and the other members of the group will have to note the share of the prize that they are claiming. So, if you hit it big with your buddies, you might need a calculator.
Once you’ve got the form filled out, send it to the IRS. If the win occurs at a casino, casino management might want a copy of the form for its own records, too.