What could be better than betting on a long shot at the race track, going to Vegas and pulling the slots, or playing money bingo and winning a big cash prize? Ask anyone who’s had it happen to them and they will tell you that there is absolutely nothing in the world like the feeling you get when you gamble and win. However, the taxes are another story.
What could be better than betting on a long shot at the race track, going to Vegas and pulling the slots, or playing money bingo and winning a big cash prize? Ask anyone who’s had it happen to them and they will tell you that there is absolutely nothing in the world like the feeling you get when you gamble and win. However, the taxes are another story.
It doesn’t matter if you went to Vegas or Reno and hit it big, or play bingo games at the local bingo hall, what you win is considered taxable income in the eyes of the Internal Revenue Service (IRS). It doesn’t matter if you won cash, a door prize, or a big-ticket item like a car. Uncle Sam wants a slice of your pie and if you don’t pay him, you could find yourself in a bit of trouble.
Before You Gamble, Know the Applicable Tax Policies
Technically, any gambling winnings count as taxable income. If what you win is considerable enough, you are required to fill out IRS Form W-2G.This form gets filed along with your federal income tax return at the end of the year. Gambling winnings may come from one of the following:
- Slot machines
- Betting pools
- Keno
- Poker tournaments
- Pool Tournaments
- Casino games
- Lottery winnings from scratch-off, pull-tab or machine generated tickets
- Sweepstakes
- Horse or dog races
- Raffles
- Game shows
- Off-track betting
- Winnings via a Sports Book
- Bingo games played in a brick and mortar bingo hall or an online casino
The start at which gambling winnings must be reported to the IRS can vary, depending on the type of game. For gambling winnings from scratch-off or machine lottery prizes, or horse and dog track bets, payouts begin at amounts greater than $600 or an amount that is equivalent to 300 times the amount of the wager that was placed. In the case of winnings from playing bingo games or from a slot machine, anything over $1,200 is required to be reported to the IRS. If you are playing in a physical or online casino and win more than $5,000, this amount must be reported.
The general taxation rate on gambling winnings is 25% of the amount won. If you win the lottery, for example, most state lotteries will withhold this federal rate and any state taxes that may also be applicable. In other situations, an estimated tax, or what is known as a backup withholding tax, of 28% is charged instead of the standard 25%. If you win $3,000 in money bingo online, for example, you would be sent a Form W-2G from the online casino from which you won it.
If tax is withheld from your gambling winnings, you will be sent a Form W2-G from the payer.
Gambling Tax Policies for Non-resident Aliens
For anyone who is not a citizen or permanent resident of the U.S., the tax rules are a little more complicated. Nonresident aliens are required to pay tax on any “fixed or determinable annual or periodical gains, profits, and income” from U.S. sources. This would include any monies won from gambling. The tax rate can be as high as 30%.
Gambling Taxation from Winnings in Other Countries
Any citizen of the U.S. is required to report all income, no matter from what part of the world that income is received. Even with the Foreign Earned Income Exclusion (FEIE), it does not cover lottery winnings. If you are taxed in another country for your gambling winnings, the taxes paid to a foreign government are not allowed to be deducted on your U.S. income tax return.
You Can Deduct Your Gambling Losses
If you are someone who itemizes on their income taxes, it may come as a surprise that your gambling losses can be deducted. You can keep track of this by keeping all of your receipts, or you may use the Form 1040 Schedule A. This form can help you to keep track of what you win and what you lose. The amount that you can deduct on your taxes can be up to the amount of money won during the tax year.
Of course, everyone’s tax situation is different and tax laws can change from year to year. Before you file your taxes, it’s a good idea speak with an accountant or tax attorney in order to be sure of what you are legally required to pay in taxes.
Join the conversation!