If you had a great night at the casino, you leave with more money than you brought. But what part of those winnings does Uncle Sam expect to receive?
The IRS views gambling winnings similarly to ordinary income. The income you receive from your job is also ordinary income. Consequently, they are taxed higher than other profitable ventures like long term capital gains.
Gambling winnings are subject to income tax. In some cases, the IRS gaming establishment withholds a portion of your winnings for taxes. Otherwise, they pay the full amount to you, mail tax forms later, and you must pay taxes when you file your return.
Taxable gambling winnings include money and prizes received from:
- Casino games (poker, blackjack, roulette, etc.), slot machines, keno, and poker tournaments
- Lotteries, raffles, sweepstakes, or gameshows
- Betting pools
- Horse races, dog races, and off-track betting
The IRS requires certain kinds of gambling winnings automatically to withhold 24% of winnings for taxes. Taxable winnings include cash, property/prizes, and annuities.
However, only the amount over $5,000 of the following are subject to tax withholding:
- Any sweepstakes; wagering pool, including payments made to winners of poker tournaments; or lottery.
- Any other wager if you win at least 300 times the bet amount.
If you win a non-cash prize like a trip or car, they are also considered gambling winnings. The IRS taxes them based on the item’s fair market value.
One of two things will happen:
- You pay the withholding tax to the payer (the entity that provided the prize). This is 24% of the fair market value less any wagers.
- The payer pays the withholding tax of 31.58% of the fair market value less the wagers. Since there is no cash to withhold in these cases, you must pay the taxes yourself.
Exceptions to Taxable Withholdings
In most cases, the casino will withhold your taxes when you cash in your chips.
However, bingo, keno, and slot machines are not generally subject to withholdings. You would provide a Social Security number in those circumstances, and the establishment mails you a W-2G later.
If you do not provide your SSN to the payer, the IRS permits them to withhold 24% if you won more than $1,200 from bingo or slot machines, $1,500 from keno, and other winnings of at least $600. Otherwise, you will pay an estimated tax, but the IRS charges you a penalty if it falls short of the actual tax.
That does not mean you won’t pay taxes. It just means you will pay taxes later. Even if you win $5 at the casino, you must report it on your tax return even though the casino does not have to report it or send you a tax form.
Gambling Winnings Income Form W-2G
If the payer withholds your income tax, they will provide a W-2G Form. W-2 is the same form your employer sends, but this one is specifically for gambling income. It will show the amount you won and the amount withheld.
When cashing out, if the payer asks for your tax identification information, you must provide:
- Your name, SSN, and address.
- If someone else is entitled to any part of the winnings subject to withholding (such as wage garnishing or child support).
- If you make identical wagers (racetrack betting and off-track betting).
On the upside, if you have a terrible night at the tables, you can deduct gambling losses from your taxes. However, you can only deduct losses only if you itemize deductions.
Because gambling winnings are taxable income and may be scrutinized, it’s essential to keep accurate records. You must prove your winnings and losses:
- Date and type of activity
- Name and location of gambling establishment
- Win or loss amount
- Name of anyone who was there with you
Note: You cannot subtract losses from wins and only report the difference. The IRS looks carefully at the total wins and total loss amounts. They require that you keep a diary with up-to-date information as well as documentation like receipts:
- Keno: copies of tickets or financial transactions
- Slot machines: machine number, date and time
- Table games: number of people at the table, casino credit card receipts from pit or cashier
- Bingo: cost and number of tickets, win/loss amounts
- Racing: list the races, wage amounts, win/loss amounts, unredeemed tickets, payment receipt from the racetrack
- Lotteries: date of ticket purchase, win/loss amounts, unredeemed tickets, and payment slips.
Learn more about how gambling winnings are taxed from the IRS Guidelines. If you have questions, contact the IRS hotline, a local CPA, or Enrolled Agent.