Income: The IRS has made this very plain: in their online advice under “Tax Topics: Topic 419, Gambling Income and Loses”, the IRS said in no uncertain words that ” Gambling winnings are fully taxable and you must report the income on your tax return.” (The IRS also provides an interactive online 10-minute interview for gamblers; the online assistant takes you through a series of questions and provides answers in claiming winnings (and deducting losses).
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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.
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.
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Online Casino Taxation – Money and Percentage
Casino Winnings Tax Rate
It’s the age-old question for all types of earnings: “Why do I have to pay taxes?” First of all, it’s because the laws in all countries require you to report your income and pay a certain percentage in tax. The reasoning behind this civic duty is logical: governments collect money from taxes to support common resources, such as schools, public roads, parks, libraries, firefighters, police, and more.
Online Casino Winnings Taxes
But what happens with the winnings from games of luck? Winnings from casinos, horse races, raffles, lotteries, and sports betting are fully taxable in some countries. But other governments are more liberal, understanding that these activities also lead to losses. In the United States, for example, the losses may be deducted so the gamblers can pay a fair tax.
Taxation is an interesting issue to explore and compare between countries. You might be interested: how much can you win at a casino without paying taxes when gambling abroad and in your own country? We’ll explore the rules for taxation of online casino winnings in the UK, Canada, USA, and New Zealand.
Taxes on Online Casino Winnings in the UK
The United Kingdom has the most liberal taxation policy in terms of a gambling tax rate: there is none. Online gambling is completely legal, but highly regulated in this country. Under the Gambling Act 2005, the Gambling Commission is responsible for licensing and controlling online gambling sites. The activities of land-based and online casinos are additionally overseen by the Financial Conduct Authority.
The government does generate taxes from online gambling. That’s the purpose behind legalizing it in the first place. However, only the operators pay taxes, based on their area of activity. Lotteries are charged a tax of 12%, whereas bingo and casino sites pay a tax of 15% on their profits.
As a gambler, you are not required to pay taxes, even if you play professionally. You are not even required to declare your income from gambling to the authorities. Still, if you gamble professionally, we recommend talking to an accountant so you can keep a performance log. Although paying taxes on casino winnings is not needed, it’s important to maintain records to make sure that you’re not losing more than the amounts you win.
Does Canada Tax Gambling?
Canada hasn’t legalized online gambling yet. Still, players can get informed about Canadian casinos from LoopX. The country does not ban websites that are located and licensed offshore, so players can easily access them. The Kahnawake Gaming Commission has licensed over 200 gambling websites, which are available to Canadians.
Canada is very strict about its taxes. But fortunately, the regulations do not encompass online gambling. If you’re a recreational player, your winnings are tax-free.
Canada does not consider recreational gambling to be a constant source of income. The country only licenses earnings from property, employment, and other viable sources. Since Canada does not consider your gambling as an activity that earns you a living, you’re not required to pay any percentage. This policy is valid not only for winnings from online casinos, but also for lotteries, sports betting, and any other game of chance.
Online Casino Winnings Taxable Real Money
There’s a catch: if you win any interest on your winnings, you must report it. The state will tax the interest and will sanction any failure to declare it. You’ll need to use a gambling winnings tax calculator, figure out how much you’re making from interest, and officially declare it on a T5 form.
If you’re a professional gambler who makes a living from playing, gambling is considered your job. In Canada, the profit from these activities is fully taxable. You’ll have to keep track of your winnings and losses, and report the taxable income.
What about the USA?
The USA does not have any federal laws on online wagering. Each state is allowed to formulate its own regulations. Currently, online casinos are legal in Pennsylvania, New Jersey, Delaware, Michigan, and West Virginia. Nevada has only legalized online poker. There’s a grey area, which allows gamblers to play on websites with off-shore licenses.
The USA does impose an online gambling winnings tax of 6.75-8%. In federal-level regulations, there’s no grey area about taxes. If you’re a citizen, you have to use a gambling tax calculator and pay, even if you played on a website licensed overseas.
The IRS has specific rules that apply to casual gamblers. Players are required to fill in a Form W-2G to report their entire winnings. You are allowed to deduct the losses, but only if you kept records and prove that you’re providing a realistic estimation of your profit.
For fair and proper taxation of gambling winnings, gamblers are required to keep an accurate win and loss diary. The IRS also requires them to provide statements, tickets, receipts, and other records for proof.
Do You Have to Pay Online Gambling Taxes in New Zealand?
Although New Zealand prohibits all gambling under the Gambling Act 2003, it does not sanction its citizens for gambling on offshore websites. Since you’re in the grey area, you may be wondering: how much money can you win at a casino without paying taxes in New Zealand?
In this country, gambling is considered a hobby. The authorities do not impose any taxes on the money you win. This liberal policy encompasses online casino play and sports betting.
You should only make sure to play on websites licensed by recognized foreign authorities, which guarantee transactions with immediate payout. But be careful; you may be required to track and report your winnings on online poker. This game is an exception when played on a professional level. It’s best to talk to a registered accountant and get fully-informed.