New IRS Rule Could Affect Gamblers’ Income Tax Filings

Written By Derek Helling on December 12, 2022 - Last Updated on February 2, 2023
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If in the past you’ve thought you could successfully hide your gambling winnings from the Internal Revenue Service using third-party payment platforms, your delusions should be further dispelled. New IRS rules make attempting that an even riskier prospect while you’re filing your income taxes for 2022.

If your winnings surpassed a certain threshold last year, the IRS undoubtedly has evidence of your activity from multiple sources. This change makes documenting and reporting your income from gambling on your 2022 1040 even more paramount.

IRS rules change reporting requirements for payment companies

As Courtney Johnston of CNET points out, this change isn’t really a modification of income tax requirements. Actually, it’s a change in reporting information relevant to annual income taxes. Johnston says that previously, the IRS had more lax standards around when third-party payment platforms like PayPal had to report your activity on their products.

In the past, those thresholds were 200 commercial transactions and a total receipt of $20,000 or more in a tax year. Under the new rule, companies like the Cash App or Venmo will issue a 1099-K to both the IRS and you each year if you receive at least $600 in commercial transactions.

In that interest, these companies might now require you to disclose identifying information like your Social Security Number so they can complete that form. This is relevant for gamblers, especially those who play online because many such players use systems like PayPal to manage their bankrolls.

This isn’t really a change in how you pay taxes on any gambling winnings, though.

Gambling income has always been taxable

The truth is that if you won $600 or more while gambling over the course of a year, the IRS already knew about it anyway even before this change occurred. That applied even if you made all your deposits and withdrawals using platforms like PayPal, too.

The gambling companies have been sending a Form W-2G to both the IRS and you to document your activity. Thus, even prior to this change, you were risking an audit if you decided to underreport and such a review could have led to interest and penalties.

This change just ensures that the IRS gets a notification of your activity from another source. It’s important to note that the IRS is completely disinterested in whether you actually made a profit off your gambling through the course of the year.

Your gambling winnings are taxable even if you actually lost money while playing throughout the year. It’s true that you can deduct gambling losses from your federal income taxes. However, that really only makes sense if the total of your itemized deductions exceeds the standard deduction for the year for your situation. A good accountant can guide you in that decision.

So, how exactly does this rule change affect your situation if you regularly use PayPal to manage your gaming bankroll? That depends on how you’ve been using it up to this point.

The nitty-gritty of this rule change for gamblers

First off, to belay fears, the IRS is not taxing your friend reimbursing you for half of the cost of the drinks you got when you were relaxing at a bar inside of a casino using Venmo. Such payments from family and friends are not part of this reporting requirement.

This rule change only affects commercial transactions. If you’re a sporadic player who won less than $600 gambling over the course of a year, this change is really immaterial for you. Additionally, if you manage your bankroll using other payment forms, you can pretty much disregard this entire conversation.

If your gambling activity involves higher dollar amounts and you primarily use third-party payment channels to manage it, there is one clear directive. In reality, though, it’s something you should already be doing.

Cover your butt with good record-keeping

This reporting change highlights the importance of a task you should be undertaking anyway. You should already be keeping detailed records of your gaming activity. Doing this has two benefits:

  • Ensures you won’t underreport your income
  • Protects you from unnecessary penalties in the event of an audit

Fortunately, online gambling makes documenting your play quite simple. Online gambling companies document your activity throughout a calendar year by default and a copy of your record is available upon request.

Even physical casinos can provide you with similar documents if you use rewards programs. Also, they should be sending you a Form W-2G at the end of each year if your activity surpasses the appropriate thresholds.

For your in-person play, the emergence of cashless payment options is making record-keeping even easier. Failing all those avenues, you can document other transactions using bank/credit statements and physical receipts.

That way, should the IRS come calling, you can prove that any gambling losses you deducted were legitimate and you made the correct payments. Your best ally in the event of an audit is a tax professional. At the same time, record-keeping empowers that professional to act on your behalf.

Photo by PlayUSA
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Derek Helling

Derek Helling is a lead writer for PlayUSA. Helling focuses on breaking news, including legislation and litigation in the gaming industry. He enjoys reading hundreds of pages of a gambling bill or lawsuit for his audience. Helling completed his journalism degree at the University of Iowa.

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