What Is Gambling Income?
Gambling income is any money that you make from games of chance or wagers on events with uncertain outcomes. Gambling income is fully taxable and must be reported on your federal tax return as gambling income.
Key Takeaways
- Gambling income is any money that you earn from games of chance or wagers on events with uncertain outcomes.
- Gambling always involves a negative expected return with the house having the advantage.
- This income is fully taxable and must be reported to the Internal Revenue Service (IRS).
- The tax paid on gains is not progressive: U.S. resident gambling income is taxed at a flat rate of 24%, regardless of the amount you win.
How Gambling Income Works
Gambling incomeincludes any money earned fromgambling, whether it be winnings from casinos, lotteries, raffles, horse and dog races, bingo, keno, betting pools, or sweepstakes. Thefair market valueof non-cash prizes such as cars or holidays is also categorized as gambling income.
In certain cases, gambling establishments may be required to withhold 24% of gains for federal income tax, reporting this on a W-2G form that is given to the winner and sent to the Internal Revenue Service(IRS). If you earn money gambling and you do notreceive a W-2G form from the payer, you must still report all gambling income to the IRS.
Casinos also issue a W-2G form when withholding is not required for the following type of winnings: $1,200 or more from slot machines or bingo, $1,500 or more from Keno games, $5,000 or more from poker tournaments.
The full amount of income earned from gambling minus the cost of the bet must be included on a your federal tax return.According to the IRS, taxpayers who aren't professional gamblers must report all gambling income not included on a W-2Gas “other income” on Form 1040, the standard IRS document that individual taxpayers use to file their annual income tax returns. Shared gambling income, winnings divided by two or more people, should also be reported to the IRS.
Gambling Income vs. Gambling Losses
Money you lose on gambling can also be reported on a federal tax return, however there are some limitations. Gambling losses in excess of you win may not be claimed as a taxwrite-off.
In other words, if you spent $10,000 to win $4,000, you could not deduct the $10,000 expense or the $6,000 overall loss. Tax deductions can only be made on the winning sum, in this case $4,000.
Non-residents of the U.S. and Canada cannot deduct gambling losses, according to the IRS.
If you or someone you know has a gambling problem, call the National Problem Gambling Helpline at 1-800-522-4700, or visit ncpgambling.org/chat to talk with a helpline specialist.
Advantages of Gambling Income
Another potential advantage for gamblers is that income earned is not taxable at progressive rates, unlike regular income taxes. Gambling winnings are always taxed at 24%, previously 25%, regardless of whether you won $1,500 on horse racing or $1 million at a poker table.
Non-U.S. residents, meanwhile, are generally taxed at a flat rate of 30% on their gambling income.
Special Considerations
Professional Gamblers
Professional gamblers are people who gamble regularly for their primary income and their profits are are treated differently for tax purposes. All of their proceeds are usually considered regular earned income and are therefore taxed at normal income tax rates.
Professional gamblers report their gambling income as self-employed income, which is subject to federal income tax, self-employment tax, and state income tax.
In 2018, the Supreme Court gave U.S. states permission to legalize sports betting and so far 35 states have legalized sports betting. Sports betting is still not fully legal in all states, although some states have pending legislation to make it legal.
Income Tax Withholding
Gambling establishments are required to withhold 24% of winnings and report them to the IRS when an individual surpasses certain thresholds—defined as$5,000 or more from sweepstakes, wagering pools, lotteries, or other wagering transactions, as well as when winnings exceed 300 times the amount wagered.
Casinos are not required to withhold taxes or issue aW-2Gto players who win large sums at certain table games, such as blackjack, craps, and roulette.
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Can You Claim Losses on Your Gambling?
You can only deduct losses from gambling earnings if you report your winnings as well. To deduct your gambling losses, which can include expenses to and from the casino, you must itemize you taxes instead of taking the standard deduction.
Do I Have to Pay State Taxes on Gambling Earnings?
Most states levy a tax on all earnings made in that state, even if you don’t live there. So, for example, if you won money gambling in Maryland but you live in Delaware, you would have to pay Maryland taxes on your winnings.
Is Sports Betting Legal?
Some states have legalized sports betting while others have not. Some states have pending legislation to make sports betting legal. In Florida, Vermont, and Maine, sports betting is legal but not operational as of Oct. 23, 2023, according to the American Gaming Association.
The Bottom Line
Unless you are a professional gambler, gambling income is included as income on your taxes and it's taxed at a rate of 24%. Casinos should withhold this portion of your winnings and report them to the IRS after you win a certain amount, depending on the game and how much you wagered. Consider consulting a tax professional if you need assistance.
