Understanding Taxes On Sweepstakes Casino Winnings
You will need to pay tax on any profits you earn from sweepstakes casinos. The IRS treats sweepstakes winnings as taxable income, and you may also need to pay state income tax.
This page explains how to report social and sweepstakes casino winnings when filing your IRS return. We will also discuss how to deduct gambling losses from your sweepstakes winnings, which can reduce or eliminate your tax liabilities.
Are sweepstakes casino winnings taxable?
Yes, the IRS deems any winnings earned from sweepstakes casinos to be taxable income. Your profits will be added to any other income that you received that year, such as your salary, bonuses, dividends, and capital gains.
The federal income tax rate you pay will be determined by the bracket you end up in and your marital status. These are the current brackets:
| Rates | Single | Married filing jointly | Married filing separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 – $11,600 | $0 – $23,200 | $0 – $11,600 | $0 – $16,550 |
| 12% | $11,600 – $47,150 | $23,200 – $94,300 | $11,600 – $47,150 | $16,550 – $63,100 |
| 22% | $47,150 – $100,525 | $94,300 – $201,050 | $47,150 – $100,525 | $63,100 – $100,500 |
| 24% | $100,525 – $191,950 | $201,050 – $383,900 | $100,525 – $191,950 | $100,500 – $191,950 |
| 32% | $191,950 – $243,725 | $383,900 – $487,450 | $191,950 – $243,725 | $191,950 – $243,700 |
| 35% | $243,725 – $609,350 | $487,450 – $731,200 | $231,251 – $365,600 | $243,700 – $609,350 |
| 37% | $609,350+ | $731,200+ | $365,600+ | $609,350+ |
You may also need to pay state income tax on profits earned at sweepstakes and social casinos, depending on where you are based. Some states charge a flat income tax rate, others impose a graduated income tax, and some do not have a state income tax.
Tax forms to know about with sweepstakes winnings
These are the key forms to familiarize yourself with before reporting any sweepstakes casino winnings.
Form 1040
Sweepstakes winnings are classified as gambling winnings. You can declare all gambling winnings in section 8b of Form 1040 (Schedule 1). That includes sweepstakes winnings, plus any winnings from lottery tickets, pari-mutuel betting, casinos, or sports betting.
On line 10 of Form 1040 (Schedule 1), you can declare your total additional income. This includes gambling winnings, plus income from any other categories listed on the form.
Look for line 8 on the main Form 1040. In that section, you can write down the additional income reported on line 10 of Form 1040 (Schedule 1). The additional income will then be added to all other income earned that year.
You can deduct any gambling losses from your gambling winnings for tax purposes, which means you only need to pay tax if you end the year in profit from all gambling activities. If you would like to do so, go to line 16 on Form 1040 (Schedule A) and enter any gambling losses sustained that year. The amount you deduct cannot exceed the amount listed in section 8b of Form 1040 (Schedule 1).
Go back to Form 1040, head to line 12, and enter any gambling losses declared on Form 1040 (Schedule A). You can also attach any supporting evidence that backs up your losses, such as credit or debit card statements or an itemized record of gambling activities.
W-2G for substantial winnings over $5,000.
If you win a prize worth more than $5,000, the payer (your social or sweepstakes casino) is supposed to withhold 24% tax. For example, if you redeem a $10,000 prize, you should receive $7,600, and $2,400 will be held back for your future tax liabilities.
When the payer withholds tax, it is supposed to issue you with Form W-2G, which details the tax that has been withheld. A copy of the form will also be sent to the IRS.
You can attach any Forms W-2G received each year to your tax return, which will allow the IRS to see how much withholding tax you have paid. The 24% is just an estimate of how much you might owe. You may get some or all of it back, or you might owe more.
1099-MISC for prizes over $600
If you redeem prizes worth $600 or more in a calendar year, the payer (your social or sweepstakes casino) is supposed to take a withholding tax and issue you with a Form 1099-MISC.
You can declare any withholding tax already paid when filing Form 1040, and attach any Forms 1099-MISC that you have received. That will make it easy for the IRS to see how much you have paid already in withholding tax.
How to manage taxes on sweepstakes winnings
Paying tax on sweepstakes winnings is a straightforward process if you remain organized and disciplined throughout the year. Follow these steps to manage your tax liabilities.
Maintain an itemized record
Maintain a meticulous record of your wins and losses throughout the year. That should include sweepstakes winnings, along with any money spent on purchasing coins. You can also make a note of any other gambling winnings or losses, including casinos, racetracks, and sportsbooks.
Keep evidence to back up claims
Hold onto any evidence that supports your claims. That can include your payment history at a sweepstakes casino, credit and debit card statements, losing tickets, and so on.
Set aside some of your winnings
Withholding tax will be taken on any substantial winnings, but it can also be helpful to set some of your winnings aside to cover any future tax liabilities. That will help you avoid any surprises when it is time to file your tax return.
Hold onto forms received
Keep copies of any Forms W-2G or 1099-MISC that you receive in a safe place. If you lose them, you can request a copy from the payer or the IRS, but that is a time-consuming process, so it is easier to hold onto the original documents.
Fill out your tax return carefully
Take your time when filling out your tax return. Double check your figures to avoid making a costly mistake. If anything is unclear, consult a tax professional for advice.
Sweepstakes winnings are treated as taxable income. However, you can reduce or eliminate your tax bill if you deduct any gambling losses from your winnings.
That requires you to maintain a detailed, itemized record of all wins and losses throughout the year, along with evidence to bolster your claims.
We recommend consulting a tax professional, who can help you fill out the various IRS forms correctly and accurately.
FAQs
Yes, you will need to pay tax on any profits earned from playing at sweepstakes casinos. The IRS treats sweepstakes winnings as taxable income. Your winnings will be added to any other forms of income that you earned in a particular year, and the federal income tax rate you pay will be determined by the bracket you end up in.
You can report sweepstakes casino winnings in section 8b of IRS Form 1040 (Schedule 1). The winnings will be added to any other income declared on that form, such as jury duty pay or stock options, and you can report the total amount on line 8 of Form 1040.
You should be issued with Form W2-G if you win a prize worth more than $5,000 from a sweepstakes that you entered. This form will highlight the 24% withholding tax that you paid on your winnings. The alternative form is 1099-MISC, which is issued if you earn aggregate prizes of more than $600 over the course of a year.
Yes, any profits earned from playing at sweepstakes casinos will be viewed as taxable income by the IRS. If you earn a profit of less than $600, you should declare it in section 8b of IRS Form 1040 (Schedule 1). The income will then be added to any other gambling winnings and other income earned that year for tax purposes.
