Gaming can be fun and entertaining and can be lucrative as well if Lady Luck is on your side. You have to know that for winnings that come from gambling from state-regulated sites are taxable.
Therefore, when you win money playing at online gaming sites regulated by states such as New Jersey, New Hampshire, West Virginia, Colorado, and Pennsylvania, you should pay taxes on them.
In this article, we will show all of the things you need to do in terms of taxes on gambling winnings on the state and federal levels.
The IRS Tax Statement
Winnings that come from gambling in any state are taxable. According to the IRS, those 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.”IRS
The IRS does not pinpoint sports betting, which is legal at the aforementioned states, but winnings coming from that are subject to taxes as well.
If you win money playing at state-regulated online gaming sites, you are subject to state and federal taxes even if you are not a resident of the state where you won the money. Keep in mind that this amount will vary depending of the state, since for example PA sports betting laws are different than NJ sportsbooks regulations
The Federal IRS Form W2-G
All gambling establishments online or land-based in New Jersey, Pennsylvania, New Hampshire, and West Virginia are required by federal law to report winnings that come from gambling. They do this by reporting winnings to the IRS on Form W2-G.
The minimum amount won for filing the W2-G will vary, as it will depend on the gambling where the winnings are derived from.
Here are some of the minimum amounts for taxes to be levied and the forms of gambling:
- Horse Racing: More than $600 won on a bet of $2 or 300x any amount that is larger bet.
- Slots and Bingo: Winnings of more than $1,200 minus the amount bet.
- Keno: Winnings of more than $1500 minus the amount bet.
- Poker: Winnings of more than $5,000 minus the buy-in.
- Sports Betting: Winnings of more than $5,000 in a calendar year.
Amount of Money Withheld For Taxes
In the instances above, the establishment where the winnings are won by the player has to file a W2-G to the IRS. You will also receive a copy of the form. If you won money, you will need this copy of the form to put gambling wins in your tax return.
Typically, a person that won money will get a copy of that form in January of the following year that the money was won.
The rate for withholding money from gambling wins at a federal level is 24% across the board. The amount that is withheld at a state level will vary and here are the percentages:
- New Jersey – 3%
- Pennsylvania – 3.07%
- New Hampshire – None
- West Virginia – 6.5%
- Colorado – 4.63%
The Responsibility of the Winner
The gaming establishment has to file a W2-G and take out the tax amount depending on the amount won and the criteria that was specified. However, you will still have to report your winnings from gambling as a type of income even if the gaming establishment does not do so.
Big winners are happy with wins but are unhappy with the taxes they have to pay on them. However, here is some positive information pertaining to taxes on winnings.
The amount of taxes that you will owe will depend on the tax bracket that you are in. Also, if deductions are itemized, you can offset winnings with losses that are documented.
Losses Can Offset Wins
You are allowed to deduct your losses from gambling. However, you can only do so to the extent of money won from gambling. If you lose more money than you won in a tax year, you can only deduct those losses up to the amount that you won.
Basically, if you report gambling as income, it cannot be in a negative amount.
However, you can combine losses from other forms of gambling. For example, if you won a big slots jackpot but lost money playing blackjack, then the losses for that game will count.
Conversely, with a significant rise in the amount you can deduct for taxes if you decide to itemize your deductions, it may not help you out in the long run.
If you are unclear about any of the issues when it comes to taxes on your gambling, you should seek out a tax professional.
What Tax Forms Should I Use When It Comes to Gambling?
If you are not a pro gambler and just a casual one and you get a W-2G, you have to put your gambling winnings on that form. On top of that, taxes taken out from any other winnings from gambling will have to be put on “Other Income” on a 1040.
After that, if you have itemized deductions, you will input gambling losses that offset on line 28 (Schedule A), which are Other Miscellaneous Deductions.
If you paid more taxes than you were required to do on the winnings from gambling, you could get a tax refund. However, if not enough money was taken out or you need to report other winnings from gambling, you may have to pay further tax money.
While gaming establishments are not required by law to give a W2-G and take out taxes for winnings for the table games of blackjack, roulette, craps, and baccarat. Still, it is under the expectation that you, the player, should keep track of wins on those games for tax purposes.
Not Reporting Gambling Income
If you get a W-2G, you should not ignore it even if the money from winnings was withheld or not. You have to show the income from money won when you file a tax return.
If you do not do this, you may receive Form CP2000 from the IRS. This form is a notice from the IRS for income that is not reported. You may have to pay additional taxes as well as penalties and interest.
It was mentioned before that if you win more than $5,000 in a calendar year, you have to pay taxes on that money. The federal tax for sports betting winnings is 24% and varies for the state level.
For example, for New Jersey, the current tax rate for land-based sportsbook wins is 8.5%. It is 13% for wins at state-regulated online sportsbooks and mobile applications.
Like other forms of betting, any winnings from sports betting is taxable, and you are responsible for paying those taxes. This is the case even if the establishment or site you won at does not report it.
If you are a professional gambler, there are different rules when it comes to taxes. The proceeds from gambling are looked at as self-employment income and then taxed accordingly for that.
Professional gamblers can deduct losses from gambling and well as being able to deduct other expenses such as travel costs, tournament fees, and attending seminars and conferences that are gambling-related.
Keep Good Gambling Records
No matter what type of gambling you take part in as a casual gambler or professional, you should always keep good gambling records. Every time you play, you should note the date, place you are gambling, the bet types you make, and the amount of money that you won or lost.
This can be of great help in pinpointing what gaming situations are the best ones for you and the best ones to stay away from in making a profit.
If you report winnings from gambling, you may be able to reduce the liability you have in terms of taxes, and this is especially the case if you lose a significant amount of money. Besides the aforementioned things you should note, every time you gamble, it is a good idea to keep receipts, betting tickets, and win/loss statements.
Again, if you have any questions about taxes and gambling at the federal or state level, you should consult a tax professional.