Tax & Casino Winnings: Do I Have to Pay Tax?
State laws usually regulate the betting industry. These laws may be very strict or less stringent depending on how the State views the industry, and the majority of the legislation is targeted at promoting responsible betting among players. One significant part of such laws deals with tax-deductible from casino winnings. While some States expressly states the percent of the tax-deductible from gambling returns, some don’t deduct tax at all. So, players need to be aware of the laws regulating gambling activities in their respective States, especially when it concerns tax deducted from their returns. That is why we have made a detailed and comprehensive review on casino winnings and tax deducted from the returns in different States, continue reading this article for proper insight.
- Tax is deductible from both cash and non-cash winnings
- Requirements for Tax returns vary with each game
- Taxes on casino winnings are not progressive
Tax and Casino Winnings in the US
In the US, casino returns are fully taxed by the federal government and sometimes the state government. Tax is deductible from both cash and non-cash returns, and the Internal Revenue service (IRS) is the organization saddled with this responsibility. So before you place that bet, you need to acquaint yourself with the gambling tax laws to avoid problems with the IRS. Some of the information you have to consider include the methods of taxing casino return, reporting of casino return, sharing of gambling returns, keeping of gambling records, and so on.
How Casino Winnings Are Taxed
As stated earlier, the federal government levy tax on both cash and non-cash winnings. Returns gotten from wagers placed on bingo, keno, lottery, raffles, sweepstakes and slots including non-cash winnings like trips and vehicles are taxable. It is the Fair Market Value (FMV) of non-cash winnings that are taxed.
Where your deductions are itemized, your betting loses for that year can be deducted on Schedule A. But your losses can only be deducted for up to the reported gambling winnings amount. So you must have:
- A correct record of your betting losses and returns.
- Verifiable gambling activity report.
If you win the money listed below, the returns will be communicated to the IRS by the Payer through Form W2-G. The winnings include:
- $600 or more if your return is 300 (or more) times your wager.
- $1200 or more from returns gotten at bingo game or slot.
- $1500 or more from returns obtained from Keno game.
- $5000 or more from returns earned at poker tournaments.
- Returns that are subject of federal income tax withholding requirement.
To do this, your Social Security Number and the Form W2-G reporting your returns to the IRS is needed. The rate of 25% is usually withheld from your returns as deductible tax.
Reporting your returns through Form W2-G does not apply to all betting returns. Form W2-G does not apply to winnings earned from table games like roulette, crap, blackjack, and baccarat no matter the money won. However, not reporting your winnings through Form W2-G does not absolve you from paying taxes on your winnings or filing your winnings to the IRS. Only that, you are not just required to file Form W2-G for the table games.
Reporting Casino Winnings
Your tax return must contain all your casino winnings. This is necessary to avoid clashes with the IRS because online gambling income is part of your total income. In other words, your (job income + gambling income + other incomes = total income). The non-cash winnings are to be reported as other income, and they are taxed using their Fair Market Value. That is why you are asked for extra details about your annual betting winnings and losses whenever you go for your file return interview.
You are under a strict legal obligation to report all prize money, winnings, income, or awards that you've won throughout the year no matter how small. However, you need not pay tax for all winnings. Itemizing your deductions will give you the advantage of claiming your losses.
The tax rate deductible from your winnings is still the same irrespective of the amount you win. So it doesn't matter if you earn $2,000 or $400,000 because betting taxes are not progressive. In some cases, the tax (25%) is already deducted by the casino before you are paid your winning. However, if you fail to give your tax ID number to the payer, 28% of the winnings will be withheld instead of the usual 25%. Withholding is effected if your winnings minus your wager are above $5,000 or at least 300 times your wager.
In the case of a professional gambler (a person who gambles for a living and earns regular income from gambling), he is expected to report his gambling expenses and income on Schedule C. He is not allowed to use Schedule A because the taxable percent of his gambling income is the same as that deductible from normal income.
Reporting Betting Losses
Gambling losses must also be reported for tax purpose. If you are sincere about your betting losses, you may be able to save some money because you will be permitted to deduct your betting losses by the Internal Revenue Service. Filing your losses, winnings and itemizing your deductions on Form 1040, Schedule A will give you the advantage of claiming your losses. It is better to report the losses separately from the winnings rather than providing a net amount.
The 2% limit does not apply to bet losses. Betting losses on Schedule A are usually deducted as miscellaneous deductions. However, your losses may only be deducted for up to the reported betting winnings amount because it may not be possible to deduct all your losses. For example, if you have a total betting return of $10,000 in 2017 and losses amounting to $10,500, you will only deduct $10,000 of the losses.
You may not enjoy the full tax advantage if your total itemized deductions do not exceed the standard deductions. The total itemized deductions include the following: medical bills, donations, and mortgage.
In situations where the returns are to be shared by two or more players, they will be required to complete Form 5754. After the tax has been deducted from the winnings by the payer, the remaining winnings will be shared among the winners. The return will also be reported under each player’s names on Form W2-G.
Tax Deduction on Illegal Gambling
Tax is deducted from returns earned from illegal gambling. According to the AGA, the association responsible for nipping illicit gambling activities and businesses in the bud more than $150 billion is spent by Americans on illegal sports betting. Although sports betting is prohibited in some states, states like Oregon, Montana, Nevada, and Delaware has made it legal. This has made any winnings gotten from illicit gambling activities taxable.
Keeping Gambling Records
The IRS requires you to keep comprehensive records of your bets, returns, and losses. You are also required to keep other information and documentation such as Form 5754, Form W2-G, bank withdrawals, canceled & substituted checks, credit records, payment slips, payment receipt, wagering tickets and actual winnings statement offered by the payer or bookmaker. Your winnings and losses are proven with these essential documents during losses deduction.
The information to be kept for each loss and win includes:
- Date of the loss or win
- Betting activity type
- Names of persons available during betting activities.
- Winnings and losses amount
- Name and address of the bookmaker
You can also provide the following information to serve as a report of your winnings and losses for specific wagering transactions:
- For lotteries, a record of winning, losses, dates, payment slips, winning statements as well as purchased and unredeemed tickets must be provided.
- For Bingo, you need to provide documentation of the amount collected on winning tickets, the cost of purchased tickets, number of games played, and any receipt from the casino.
- For Slot machines, a documentation of the playing time, machine number and winning dates must be provided.
- For Keno, copies of your casino check cashing records and casino credit files must be provided. Copies of purchased Keno tickets verified by the casino must also be provided.
- For table games, records of the payer's credit card data specifying how the credit was issued and the number of the table used in playing must be provided. The table games in this category include baccarat, craps, blackjack, poker, wheel of fortune, and roulette.
- For racing games, a record of the amount of bet placed, races, winning tickets amount, losing tickets amount as well as unredeemed tickets and payment records must be provided. The racing games include dog racing, harness and horse racing.
Gambling Taxes in Other Countries
|France||7.5% on sports betting, 7.5% on racing, 2% on poker|
|Ireland||Bookmakers pay 1% on all wagers and not winnings.|
|Portugal||Only if the lottery is up to 35%|
|Spain||None but winnings must be declared as income for taxation.|
|Greece||Only if the lottery is at 10%|
Which Casino Offers the Best Winnings?
Find out which casino offer the best winnings at our sports betting comparison page for profitable bets. The information on our Casino comparison is researched critically to help you make the best choices and to ensure you profit maximally from different options. Thus, it is imperative that you give a glance at this page and do yourself bag loads of favors.