If you’ve ever had gambling winnings, you might wonder: do I have to pay taxes on them? This is an important question that every gambler should understand. The short answer is yes – gambling winnings are legally subject to taxation. Federal income tax is applied to gambling winnings in the US, and you’ll have to pay state income tax on winnings in some cases.
As far as the Internal Revenue Service (IRS) is concerned, gambling winnings are a form of taxable income. Some states require you to report gambling winnings and pay state taxes on top of federal taxes, while some don’t. In this guide, we’ll clarify the rules and regulations pertaining to gambling taxes in the United States.
Federal gambling income tax laws
Gambling winnings that occur in the US are subject to federal income tax withholding, no matter which state. Different rules and tax rates apply to different games, however. If you reach a certain winnings threshold in a particular game, you’ll have to fill out tax form W-2G.
The casino where you win is required to provide you with a W-2G form and report your winnings to the IRS. Here are the games and winnings thresholds that require a W-2G:
- $5,000 or more from lotteries, sweepstakes, or sports betting pools
- $1,200 or more from slot machines or bingo (not minus the original wager)
- $1,500 or more from keno (minus the original wager)
- $5,000 or more from poker tournaments (minus buy-ins)
- $600 or more from other games not listed above, but only if the winnings are 300x the wager or more
All gambling winnings that fall into one of these categories are subject to a 24% federal withholding rate. If you score a really big win, the casino will sometimes withhold taxes on your winnings. You’ll have to declare the winnings on your tax return, and the amount that the casino withholds is applied to your annual income tax payment. You could end up owing more or less on the winnings depending on your tax bracket.
If the casino doesn’t withhold taxes from your win, you’re responsible for reporting the winnings and paying the appropriate tax when you file your return. In either case, you must report applicable gambling winnings in the “Other Income” section of your 1040 when you file your taxes.
Remember that any time a casino gives you a W-2G, that generates a report that sends information about your win to the IRS. In other words, the IRS will know that taxes are due on your win.
State and local taxes on gambling winnings
Federal tax rules apply to gambling winnings in all states. In addition to the federal tax, you’ll also be on the hook for state taxes in some states. Many states require you to pay state income tax on gambling winnings that you win at a casino or other location in the state. The state tax applies whether you live in the state or not.
In most cases, if you travel to another state and score a gambling win that requires a state tax withholding, you’ll pay the tax to the state in which you won the money. You generally won’t have to pay taxes in both the state in which you won the money as well as your home state, as you’ll get a tax credit in your home state.
US states fall into three categories when it comes to taxes on gambling winnings. Some states don’t have any kind of income tax, some states have an income tax but don’t tax gambling winnings, and some states have an income tax and a tax on gambling winnings.
The specifics of tax laws in states that do define gambling winnings as taxable income vary. If you score a big win at the casino, be sure you clearly understand what’s required of you in terms of filing and payments. Hiring a tax professional is advisable in most cases.
Do I have to pay taxes on sweepstakes casino winnings?
Sweepstakes casinos fall into a different legal category than brick and mortar casinos and traditional real-money online casinos. This raises the question: do you have to pay taxes on sweepstakes casino winnings? The answer is yes. In terms of federal taxes, sweepstakes winnings are a subset of gambling winnings.
A sweepstakes casino win of $5,000 or more is subject to the federal gambling tax. State taxes on sweepstakes casino winnings depend on which state you’re playing from. It’s advisable to keep detailed records of your sweepstakes casino winnings throughout the year and consult with a tax professional. Making assumptions about sweepstakes winnings could lead to unexpected tax payments and penalties.
Gambling winnings and overall income
Note that the 24% federal withholding rate applied to certain categories of gambling winnings is an estimated tax rate. In terms of where gambling winnings fit into your tax obligations, a significant win is considered part of your annual income for the year. You must report any applicable gambling winnings in the “Other Income” section of your 1040.
The total tax you end up paying on your gambling win may end up being more or less than 24%. Gambling winnings are added to your annual income, and you pay the appropriate income tax amount on your income in totality. If a casino withholds the 24% federal tax from your win, you could end up owing more or getting a refund depending on your overall income and tax bracket.
For example, suppose your income from your job is $100,000 in 2024. You’re also an avid sweepstakes casino player, and you win a 20,000 SC jackpot. You then redeem that jackpot for $20,000. The $20,000 redemption counts as part of your annual income, which you are then required to report as $120,000 ($100,000 as your job income and $20,000 as “Other Income”). Your federal tax requirement is whatever you owe on your net income of $120,000 for the year.
If you’ve already paid the 24% estimated tax on the $20,000, that goes toward your overall annual payment.
Gambling winnings and losses
Going back to our theoretical 20,000 SC jackpot – the estimated tax on that win is 24%, and you need to factor those winnings into your annual income. What about your losses at a sweepstakes casino? Can you deduct gambling losses for the year from that $20,000 win?
Recreational gamblers can deduct losses, but only if they itemize deductions. These losses are reported on Schedule A (Form 1040) of your tax return. Specifically, you would report gambling losses on line 27 of Schedule A under “Other Miscellaneous Deductions”. It’s important to note that you can only deduct losses up to the amount of your winnings. If you decide to claim your gambling losses, you give up your standard deduction on your taxes. In most cases, claiming your losses isn’t worth losing the standard deduction.
The IRS requires you to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements, or other records that show the amount of both your winnings and losses. This documentation is crucial if you’re ever audited.
If you’re a professional gambler, you can report both your winnings and your losses, and deduct gambling losses from winnings without itemizing anything. For professional gamblers, losses can be claimed as business expenses and written off in terms of income reporting. You should only file your taxes as a professional gambler if you really are a professional gambler, however. Only do this if gambling truly is your full-time job.
Another important note – you can’t write off gambling losses that exceed your gambling winnings. Gambling winnings (in terms of tax reporting) can only be net positive, or zero. They can’t be a negative number.
Disclaimer
This article is for informational purposes only and should not be considered financial advice. The tax laws and regulations surrounding gambling winnings can be complex and subject to change. We strongly recommend consulting with a Certified Public Accountant (CPA) or tax professional for personalized advice regarding your specific situation. The information provided in this article is based on research and general guidelines, but individual circumstances may vary.
IRS resources
For the most up-to-date and official information on gambling winnings and taxes, please refer to the following IRS resources:
- Topic No. 419 Gambling Income and Losses
- Publication 525 (2022), Taxable and Nontaxable Income
- Form W-2G, Certain Gambling Winnings
- Instructions for Forms W-2G and 5754
- Publication 529 (2022), Miscellaneous Deductions
These resources provide detailed information on reporting gambling income, deducting losses, and understanding your tax obligations related to gambling activities. Always refer to the most recent publications and consult with a tax professional for the most accurate and up-to-date advice.