In life, there are “good problems” to have, like having to decide how to spend your gambling winnings when you play successfully. Another part of that is paying taxes on your winnings. Sure, it can be a tough pill to swallow to part with some of your windfall, but it’s a good problem in that it’s only something you have to “worry” about when you’ve won.
In a lot of cases, you might not owe a dime, actually. In many instances, when you win betting on horses or sports, playing online casinos, with a lottery ticket, etc., the entity granting the prize withholds taxes for you. If that’s the case, all you have to do is report the win. Ultimately, though it is up to you to know whether or not you are responsible to pay taxes on your winnings.
The IRS considers all forms of financial betterment, including gambling income, reportable if it’s over a certain threshold. That goes for many states and local municipalities in the United States as well. That means you need to treat your winnings as such.
To help you out, we have a resource guide to gambling winnings and taxes in the United States that covers frequently asked questions about the topic. However, this is by no means a comprehensive tutorial. If you have more substantial questions about your individual situation, an experienced and reliable accountant or tax lawyer is your best bet.
Do I have to pay tax on gambling winnings?
Gambling winnings that total a sufficient amount are subject to federal income tax. So the short answer to the question is yes, gambling winnings are taxable in all states, at least with regard to federal taxes.
When it comes to state income tax, some states do require residents to pay taxes on gambling winnings, but some do not. Each state has its own rules regarding state taxes on gambling winnings. Among those that do, some tax a flat percentage and some use a formula to calculate state tax owed according to the amount you won.
Read on for information below regarding whether or not your state requires payment of state income tax on gambling winnings. (See “Do you pay state taxes on gambling winnings?”)
Are gambling winnings taxed as income?
The answer here is also yes. Gambling winnings are considered a form of income, making them subject to taxation just like other kinds of income.
In the context of taxes, you will sometimes see gambling winnings described as “gambling income.” In fact, when you pay federal taxes on gambling winnings, the box on the form where you enter the amount you have won says “Other Income.”
In other words, winning significant sums from gambling elevates your overall income, potentially pushing you up into a higher tax bracket.
That’s why you’ll see lottery winners often have to make decisions about whether to accept their winnings in a single lump sum or spread out in payments over the course of many years. The choice has significant tax implications.
Do I need to pay federal taxes on gambling winnings?
Yes, you do, but you are only required to do so if the winnings exceed a certain amount. When you win at gambling, the payer is supposed to supply you a Form W-2G if your winnings exceed the following thresholds:
- $1,200 or more (not reduced by the wager) from bingo or slot machines
- $1,500 or more (reduced by the wager) from keno
- $5,000 or more (reduced by the wager or buy-in) from a poker tournament
- $5,000 or more from lotteries, sweepstakes, or betting pools
- $600 or more from other types of gambling if the amount is at least 300 times the wager (e.g., winning $600 on a $2 horse racing bet); in this instance, the payer has the option to reduce the winnings by the wager
These gambling winnings are subject to federal income tax withholding at a flat rate of 24%.
When the win is large enough, the payer (e.g., the casino) will often go ahead and withhold that amount before paying out your winnings. If so, then you don’t have to pay taxes on them when you file your return (but you still have to declare the winnings). If not, you’ll be paying those taxes later.
Creating the W-2G form to give to the winner also generates a report from the payer to the Internal Revenue Service.
If you win a big payout at a slot machine and the casino gives you a W-2G, you need to list your winnings when you file your federal income taxes. The IRS might not have congratulated you for your big win, but thanks to the payer creating the W-2G form, you can be assured they know about it!
Do I pay state taxes on gambling winnings?
It depends on the state in which you live.
There are some states that do not require residents to pay state income tax. In those states, you obviously need not worry about state taxes on gambling income. Those states include:
- New Hampshire
- South Dakota
Note that New Hampshire and Tennessee both collect state tax on dividends and interest, but not income tax. All other states do require payment of state income tax in addition to the federal income tax that you pay each year.
Some of these states require no additional state income tax be paid on gambling winnings. In those states, paying federal income tax on your gambling winnings satisfies your obligation.
However other states do require you to pay an additional state income tax on gambling winnings. The amount of tax a state requires can be based on various factors. Some tax a certain amount for lottery wins, and a different amount for other kinds of gambling income. Some base how much they tax on the winner’s income.
Which states require payment of state taxes on gambling winnings?
Here’s a table showing the latest information regarding which states tax gambling winnings. Keep in mind that each state that requires state tax on gambling income has its own tax rate and guidelines. In some cases, gambling winnings are subject to state tax except for lottery winnings.
|State||State tax on gambling income?|
Click below for more detailed information about the following states’ laws regarding taxes and gambling winnings:
By the way, you will find many states require non-residents to pay state tax on gambling winnings won in their state. When you receive a W-2G for gambling income, the state in which you won that money also receives a copy.
In most cases, if you pay tax on gambling winnings in another state you can receive a tax credit in your own, so you don’t get hit twice.
If your winnings or your gross income in the state where you won meets that state’s minimum filing requirement, the state will expect you to file a non-resident state return. (If the taxes weren’t taken out of your winnings before you were paid.) For example, in Minnesota, if your gambling winnings carry you over the $12,200 minimum for filing a state return, you’ll need to file a nonresident return.
Bottom line — if you score a big enough gambling win to generate a W-2G, be sure to look into all of your potential obligations when it comes to paying state taxes on your win.
What are considered gambling winnings?
The term “gambling winnings” refers to winnings obtained from a variety of different gambling games. Legally the term refers to both money and other kinds of prizes with cash value such as you might win in sweepstakes or raffles.
This includes winnings from traditional casino games, such as:
Casinos do not typically generate W-2G forms for table games like baccarat, blackjack, craps, roulette, or poker cash games. Even so, you are still expected to pay taxes on your winnings in such games, even if you aren’t issued a W-2G for them.
Gambling winnings also include money won from betting on sports, including:
- Sports betting (online or in a retail sportsbook)
- Betting pools (e.g., “March Madness” pools)
- Daily Fantasy Sports
- Horse or dog races (live and off-track betting)
Gambling winnings also refers to winnings from other legal types of gambling, including:
- Game shows
How are different types of gambling winnings taxed?
Taxes on state lottery wins
Money won playing the lottery is an example of gambling income, and is thus subject to federal income tax requirements as described above. Typically the federal taxes start with wins of $600 or more.
When it comes to state income tax, typically states with lotteries only withhold tax on winnings that exceed a certain threshold. For example, in New Jersey lottery winnings in excess of $10,000 are subject to state income tax. Meanwhile some states tax gambling winnings except for lottery winnings. California is an example.
Taxes on multi-state lottery wins
With multi-state lotteries like the Powerball or Mega Millions, federal taxes for the big wins are withheld upon payment. In most cases, individual states will also ask for a share in the form of state income tax.
You’ll sometimes see lists of “best and worst states” in which to win the Powerball. New York currently requires the highest state tax of 8.82% on lottery winnings. Other states like California, Florida, Pennsylvania and others require lucky winners to pay no state tax at all.
Taxes on slot machine wins
The IRS requires casinos to report slot machine wins of $1,200 or more. When you win such a jackpot, you’ll receive a W-2G form along with your winnings. Generally speaking, the payer won’t take out any taxes on site unless your win exceeds $5,000, in which case the casino will take out 24% for federal taxes. In states that require it, you’ll also be obligated to pay state income tax on your winnings.
In order to create the W-2G form, you have to provide the payer some personal information, including your Social Security Number. If you refuse to provide your SSN, the casino might go ahead and withhold taxes on small jackpots.
Taxes on sports betting wins
When you win money betting on sports at a retail or online sportsbook, the payer is similarly obligated to report wins of $600 or more. As with slot machine wins, the sportsbook might withhold 24% of wins of $5,000 or more per federal tax requirements. Depending on the state, you might have to pay state income tax as well.
While most sports bettors won’t be deducting their losses, it is possible to do so. See below for help answering the question “Can I report gambling losses?”
Taxes on daily fantasy sports wins
Daily fantasy sports winnings are taxed in much the same way as sports betting wins. Since DFS is primarily an online form of gambling, be sure to review how the fantasy sports site handles issuing W-2G forms for winnings.
Taxes on poker wins
When you win $5,000 or more in a poker tournament (live or online), you must pay taxes on your win as gambling income. Note that the $5,000 threshold represents your profit in the tournament; that is, the amount of your cash prize minus the tournament buy-in. Again, when enjoying wins of that amount or higher, you’ll typically receive a W-2G when you collect your payout.
With cash games, poker is like other table games in that casinos usually don’t keep track of winnings or issue W-2G forms. You are still obligated, however, to keep track of your wins and pay taxes where required to do so.
Are gambling winnings reported to the IRS?
Yes, they are.
As noted above, when gambling winnings exceed a certain amount, the payer generates a W-2G form to give to the winner. Retail casinos routinely create these forms and give them to winners. So will online casinos and sportsbooks when people win a sufficient amount on their sites.
The form not only helps winners declare gambling winnings when filing their income taxes. The creating of a W-2G form also enables the payer to report the winnings to the Internal Revenue Service.
How long do I have to claim my winnings with the IRS?
As with other income, you need to report your gambling winnings from the previous calendar year when filing your tax return.
Extensions and other exceptions apply similarly. But generally speaking for whatever gambling winnings you enjoy during one year you should be declaring them on your following year’s returns. That way you ensure you are paying whatever tax you are responsible for on your gambling income.
Can I write off my winnings?
A “write off” is another way of referring to a tax deduction. If you are a recreational gambler, you probably won’t be writing off your winnings or taking any deductions related to gambling.
If you are a professional gambler and declare yourself as such on your tax return, you do have the option to write off expenses associated with your gambling. This works similarly to other kinds of self-employment for which you can declare the costs of doing business.
Professional gamblers might choose to write off meal and travel expenses associated with gambling. For example, a full-time poker player who travels to play tournaments might declare plane tickets, hotel room expenses, the cost of meals when on the road, and the like.
A professional sports bettor or daily fantasy sports player might write off expenses associated with research (e.g., reading periodicals, gathering and evaluating data, etc.). A professional who gambles online might write off the cost of an internet connection.
Professional gamblers generally do not write off the money with which they gamble, although there are exceptions. In some cases, they can declare those expenses as gambling losses in order to offset the income they declare (see below).
Can I report gambling losses?
Recreational gamblers who do not identify themselves as professionals when filing tax returns can deduct gambling losses. However, when doing so, they have to itemize their deductions to claim their losses.
To be honest, most recreational gamblers aren’t going to want to start itemizing their deductions related to gambling. That’s because when they itemize they can no longer take the standard deduction when filing their takes. In most cases, the standard deduction is going to be more than the total of the itemized deductions.
By contrast, professional gamblers can deduct their losses without itemizing. Essentially they are declaring those losses as business expenses (as “write-offs”) in order to reduce their taxable income.
It’s worth pointing out that if you’re going to call yourself a professional gambler, it really needs to be your full-time job. Those who try to call themselves professional gamblers for the sake of filing taxes who aren’t really professionals run a risk of being audited.
For everyone — recreational and professional gamblers — you cannot declare gambling losses that exceed your gambling winnings. Even though in real life people often lose more than they win, when it comes to taxes, your losses cannot exceed your winnings.
What is a W-2G form?
A W-2G form is form reporting gambling winnings and any federal income tax withheld on those winnings.
It is akin to a W-2 form such as an employer might issue to indicate the amount of your wages and the taxes taken from them. In both cases, when you receive the form, the IRS gets notified as well. Thus you learn what you need to declare (if anything) when filing your taxes while the IRS learns what you’ve been “paid” (or what you’ve won).
If you win at gambling and do not receive a W-2G form, you can download one yourself and fill it out as needed. You can then include the form with your taxes when filing.
How to pay gambling taxes in your state
Everyone must pay federal taxes on gambling winnings. Some states have no state income tax. Most states do, but some of those do not require state income tax be paid on gambling winnings.
In states where you do have to pay gambling taxes (in addition to the federal tax you pay), there are a variety of ways to go about doing so.
Most involve entering onto your state tax form the amount of your winnings, often in a box designated “Gambling and Lottery Winnings” (or something similar). This amount is then added to other forms of income to calculate your total taxable income.
Each state provides detailed information about how to handle reporting gambling winnings, if required.
Are gambling winnings taxed as income in my state?
Most states require residents to pay state income tax. Some of those also require the payment of state tax on gambling winnings (separate from your federal tax payment on gambling winnings).
To find out if your state requires you to pay state income tax on gambling winnings, see the table above under the heading “Which states require payment of state taxes on gambling winnings?”