How to Report Gambling Winnings on Taxes

With the world of online casinos and sports betting taking off, countless people are making a little extra cash, not to mention having tons of fun. After all, slots and card games are about fun first and foremost. However, if you are winning money at online casinos, there is another side to the equation: taxes. Let's look at the basics of what you should know about reporting any online casino or other gambling winnings on your annual taxes.

Winnings Are Taxable Income

The first thing you need to understand is that all gambling winnings are considered taxable income. It's similar to going on a game show. If you win big on Jeopardy! or Who Wants to Be a Millionaire!, you don't keep all of those winnings because there are taxes to be paid. The same applies to both professional and novice gamblers who win at casinos, sportsbooks, or anywhere else. Most of the time, gambling winnings are withheld at a rate of 24%.

Forms to Know About

When you win a significant amount of money while betting, the entity paying you will provide you with a Form W2-G. This form is similar to a 1099, as it helps to document your gambling winnings while also alerting the IRS that you have won money betting and owe them some of those winnings. On your yearly tax return, you are required to report all gambling winnings. This is true even if the entity that paid you didn't send you a W2-G.

Why Wouldn't I Receive a W2-G?

There aren't certain thresholds that trigger a W2-G being sent to you. For poker, the threshold is $5,000. If you win at Bingo or slot machines, earning $1,200 will trigger a W2-G. For sportsbooks and online casinos, if you've won at least $600, you should receive the proper tax forms. However, even if you didn't reach these thresholds, if you won any amount, it still needs to go on your IRS tax return.

How to Report Winnings

Reporting your gambling winnings is essential for completing your taxes and staying compliant with IRS regulations. As mentioned, if you've won a substantial amount - whether it's at a casino, racetrack, sports site, or lottery commission - you will be issued a W-2G. However, if you don't receive a W-2G for your gambling winnings, you should report them on your tax return using Form 1040 or Form 1040-SR, specifically on Schedule 1.

Are Gambling Losses Deductible?

You can deduct gambling losses, but only if you itemize your deductions and maintain accurate records of both your winnings and losses. In other words, you need to be detailed in tracking wins and losses. Also, the amount you can deduct for losses cannot exceed the amount of gambling winnings you report on your tax return.

Given the current tax code, only losses directly related to your wagers can be deducted. This means that non-wagering expenses like travel costs can be deducted, which isn't a concern if you've jumped on the online casino bandwagon.

Keep in mind that while your winnings are reported by the payer on a Form W2-G, your losses are not automatically reported. To claim a deduction for betting losses, you'll need supporting documentation like wagering receipts while also establishing a log of your losses. This means the type of gambling activity, the dates of that activity, and the amount of your winnings and losses.

State and Federal Tax Differences

Don't forget that the tax rate on gambling winnings varies by state. Since most states have income tax, your gambling winnings could be subject to both federal and state taxation. As mentioned, for federal taxes, the normal gambling withholding is 24%. But state rules and tax rates on gambling winnings can differ significantly. Some states tax gambling winnings at a flat rate while others base it on your overall income tax rate. Unfortunately, this can complicate matters, which means you need to check your state's specific guidelines for taxes on gambling winnings.