Paying tax on gambling winnings in the United States of America is all part of the law. Each state within the country has its own rules and reporting requirements relating to this. It varies so widely across the country, so it is ideal to know how gambling winnings tax operates in your specific state.

This guide to the tax on gambling in the U.S. will inform you on how it all works. Through it, you can figure out how much tax you need to pay on winnings, as well as how to do submit payments.

Do I Have to Pay Tax on Gambling Winnings?

Yes, anyone participating in gambling in the USA must pay tax on their winnings, whether you’re a casual gambler or a professional gambler.

Casual Gamblers

Casual gamblers, those who aren’t in the trade or business of gambling, need to report income on their tax return.

Gambling income includes (but is not limited to) any winnings from:

  • Lotteries
  • Raffles
  • Horse races
  • Casinos

Should you be the recipient of anything that isn’t cash in winnings, you need to take a slightly different course of action.

For Example

If you win a car or a vacation from gambling, you need to include the fair market value of the prizes. This is declared as “other income” when you fill out your tax return.

Professional Gamblers

Professional gamblers have a different route to take in comparison to casual ones.

If you fall into this category, you can file a Schedule C, highlighting yourself as a self-employed individual.

In doing so, you can deduct costs relating to your gambling activity, like meals and any expenses incurred from travelling to gambling events. You do have to pay self-employment tax on any net income from your gambling activity, though.

What Qualifies as Gambling Winnings?

It is important to know that winnings need to be substantial enough to qualify in the first place. The tax will also vary, depending upon what you gambled on.

You will only pay US taxes on winnings reported in a form W-2G, provided by the payer, if you win:

  • $600 or more on a horse race, if the win pays at least 300x the amount wagered.
  • $1,200 or more from playing bingo games or slot machine titles.
  • $1,500 or more in winnings from playing keno.
  • Over $5,000 in winnings from participating in a poker tournament.
  • Any winnings that are subject to a federal income-tax withholding requirement.

Are All Gambling Winnings Taxable?

Regardless of where you engage in gambling, be it online or at a physical venue, you must pay tax on gambling winnings.

You may be able to deduct gambling losses from your tax, so it is important that you keep a record of your activity. This will ensure you can report your winnings and deduct any losses as accurately as possible.

Cash Winnings

Cash Winnings from gambling are self-explanatory. This is the most common form of gambling winnings.

Maybe you took a trip to Las Vegas and won in a casino there. Or, perhaps, like many other people who are reaping the benefits of the burgeoning sports betting sector in the US, you placed a few wagers on your favorite teams. Instances like these provide cash winnings.

Should the cash winnings exceed the levels highlighted earlier, a payer needs to issue you the Form W-2G, Certain Gambling Winnings.

Non-Cash Winnings

Non-cash winnings relate to entering draws to win physical prizes that aren’t cash. So, perhaps you enter a lottery draw to win a vacation somewhere, which is worth $3,000.

The fair market value (FMV) of any non-cash gambling winnings must be reported when figuring out your income.

What Is Form W-2G: Certain Gambling Winnings?

Taxes on gambling winnings are reported through the W-2G form, alongside any federal income tax withheld on such winnings.

Requirements surrounding the reporting and withholding depend upon three things:

  • The type of gambling.
  • The amount of gambling winnings you have earned.
  • The ratio of the winnings compared to the wager, in general.

Who Must File Form W-2G?

Cash winnings and any FMV of other prizes are highlighted as “other income” on a Form 1040. Yet anyone scoring a huge payout needs to fill out the Form W-2G, which is a report on those winnings. The tax code determines that any gambling institution needs to issue such forms should you win more than the sums outlined earlier.

The popularity of online casino gambling in the U.S. is constantly growing, and many people participate in other games. Yet if you play table games like blackjack or roulette or baccarat, for example, these are exempt from the W-2G rule.

If your winnings aren’t enough to warrant the payer providing you with a W-2G form, that doesn’t mean you don’t have to claim the income and pay gambling winnings tax. It just means that it won’t occur via this specific form.

The tax picture alters slightly if you’re a professional gambler. Deductions from losses that exceed your winnings aren’t allowed in this circumstance. A professional gambler effectively engages in such as their day-to-day job. So, rather than claiming winnings as “other income” on the Form 1040, a Schedule C is filed. This allows professionals to deduct their other costs of doing business as self-employed workers.

For Example

Self Employed Professional Gamblers can deduct the costs of items such as:

  • Data relating to their gambling profession, such as magazines or periodicals.
  • Internet costs, if the betting occurs online.
  • The cost of travelling and eating if gambling tournaments and/or events are attended.
  • That all sounds great, but keep in mind you will have to pay self-employment tax on any net income from gambling if you’re a professional.

How Much Tax Do I Have to Pay on Winnings in the US?

The tax rates for bettors in the United States differ from state to state.

The payer of your winnings will automatically deduct 24% of the total for taxes and will then provide you with Form W-2G. You record the transaction on that form if you win a substantial amount. That 24% gambling winnings tax rate is set across the board, and this goes directly to the IRS.

This serves as an estimated tax, so you could get some of it back, or you may owe more. The taxes on table games are not taken straight away, but you still have to report the income and pay taxes from such.

Today, 39 of the 50 U.S. states have legalized at least one form of gambling, with sports betting being the most common. Each of these states imposes its own laws surrounding tax on casino winnings, sports betting, online gambling, and so on. The federal tax on gambling winnings remains stable at 24%, though.

Tax rates for gambling establishments operating as online and retail sportsbooks differ in 13 of the 29 states. The lowest tax sits at around 6% while the highest is 51%.

Each state follows a Gross Gaming Revenue (GGR), which targets the gross receipts of betting operators.

For Example

  • Arizona has an online tax of 10%, a retail tax of 8% and an effective tax of 3.6%.
  • Illinois, as an alternative, has set all three of these at 15%.
  • All Nevada’s are set at 6.75%, while Pennsylvania has an online and retail tax of 36%, with an effective tax of 24.6%.

So, you can see how different the tax rates are from state to state.

Of course, tax rates can also change with new legislation and amendments. A bill has been introduced in New Jersey, for example, which aims to increase tax rates for online sports and casino wagers to 30%.

Do I Have to Pay State Taxes on Gambling Earnings?

Most states tax all income earned within their state, regardless of where you reside.

For Example

If you’re a citizen of West Virginia but win in New York, your winnings are subject to New York gambling tax laws. You still need to report the winnings in West Virginia as well, but you will likely get a credit or deduction for taxes already paid to a non-resident state.

Where Do US Taxes Go?

Gamblers may wonder where the money they pay in taxes goes. The simple answer is that several areas benefit from the tax funds, with social security being the largest of these. 22% of tax dollars contribute to this, ensuring that workers can secure their own retirement as per the 1935 law.

Health and Medicare each take 14% in taxes, with the largest health expense being grants to states for Medicaid. This helps cover medical costs for people with lower incomes.

National Defense and Income Security each benefit from 13% of U.S. taxpayers’ money, while Net Interest payments on government debt receives 11%.

Below this, 5% goes to Veterans’ Benefits & Services, while Transportation and Commerce each receive 2% of tax money. The remaining 4% is given to other areas.

Gambling Tax Calculator

Working out your taxes isn’t something anyone likes having to do, but it is important. It’s also vital that your report is as accurate as possible.

To assist you with figuring out your tax, you can use a gambling winnings calculator. Many of them exist online, allowing you to choose your state of residence, how you are filing, the total annual taxable income you have and the gambling win amount.

You can then see how much tax you will pay and what you keep from your gambling winnings.

Can I Claim Gambling Losses?

You are allowed to deduct any money you lose from your gambling winnings for tax purposes. However, gambling losses that are in excess of what you win cannot be claimed as a tax write-off this way. You also cannot deduct the cost of your wagers from your winnings when determining how much you won.

Here are some tips for deducting gambling losses for tax purposes effectively:

  • Itemize your deductions by listing them on Schedule A of your Form 1040.
  • Enter your expenses on the appropriate lines, add them up and copy the total amount to the second page of Form 1040. This amount is then subtracted from your income for your final taxable income figure.
  • Keep track of your wins and losses, as the IRS requires the log prior to deducting any losses from winnings. Wins and losses need to be separated and reported individually.
  • Records should include the date and type of gambling engaged in, the names and addresses of places gambled, the people you gambled with, and the amounts won and lost.
  • Keep other documents to prove losses, like form W-2G, form 5754, wagering tickets, canceled checks or credit records, any receipts from a casino or sports betting facility.

Do Tourists Have to Pay Tax on Gambling Winnings?

You may need to file Form 1040-NR if you are a tourist who gambled and won in the United States. This is filed for income tax purposes alongside Schedule 1 (Form 1040) for reporting gambling winnings. A 30% income tax or lower tax treaty rate is usually in place, because the income is not effectively connected to US trade or business.

The United States also signed an income tax treaty with various countries, with several of them having a provision in place for gambling income. This reduces the 30% withholding tax on gambling proceeds for nationals of the following countries:

  • Austria
  • Belgium
  • Bulgaria
  • Czech Republic
  • Denmark
  • Finland
  • France
  • Germany
  • Hungary
  • Iceland
  • Ireland
  • Italy
  • Japan
  • Latvia
  • Lithuania
  • Luxembourg
  • Netherlands
  • Russia
  • Slovakia
  • Slovenia
  • South Africa
  • Spain
  • Sweden
  • Tunisia
  • Turkey
  • Ukraine
  • United Kingdom

As a resident of one of those countries, you need only present a W8-BEN form to the gambling establishment along with your Individual Taxpayer Identification Number (ITIN). This will prevent the venue from withholding tax on winnings.