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All gambling winnings received from slot machines are subject to federal taxes, and both cash and non-cash winnings (like a car or a vacation) are fully taxable. Apart from slot machines, the same applies to winnings from lottery, bingo, keno, poker or other games of chance.
Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.
Casino Winnings Are Not Tax-Free
Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.
By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.
How Much You Win Matters
While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:
- $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
- $1,500 (reduced by the wager) in keno winnings.
- $1,200 (not reduced by the wager) from slot machines or bingo
- $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.
Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.
Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.
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What is the Federal Gambling Tax Rate?
Standard federal tax withholding applies to winnings of $5,000 or more from:
- Wagering pools (this does not include poker tournaments).
- Lotteries.
- Sweepstakes.
- Other gambling transactions where the winnings are at least 300 times the amount wagered.
If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.
The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.
It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.
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Can You Deduct Gambling Losses?
If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.
The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.
What About State Withholding Tax on Gambling Winnings?
There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.
Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.
State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.
How to Report Taxes on Casino Winnings
You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.
You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. Online casino real money no deposit bonus. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.
Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.
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Re:Out-of-State Tax Credit and Gambling Winnings from Slot Machines
Dear *****:
This is in response to your letter to the Department of Taxation ('the Department') regarding the out-of-state tax credit and the gambling winnings that you ('the Taxpayer') received from slot machines. Because this response may be of interest to other taxpayers and practitioners, your letter is being treated as a ruling request under Va. Code § 58.1-204.
In 2010 and 2012, the Taxpayer received gambling winnings from slot machines in West Virginia and paid taxes on that income to West Virginia. For the relevant taxable years, the Taxpayer was a resident of Virginia. Pursuant to advice from her tax preparer that the out-of-state tax credit does not generally apply to gambling winnings, the Taxpayer also paid taxes on her gambling winnings to Virginia on her 2010 and 2012 income tax returns. The Taxpayer contends that the out-of-state tax credit should apply to her gambling winnings and that the double taxation of her gambling winnings is unfair and discriminatory.
Va. Code § 58.1-332 A generally allows Virginia residents to claim a tax credit for income taxes paid to another state if the income is earned or business income or gain on the sale of a capital asset. The terms 'earned income' and 'business income' are defined in 23 VAC 10-110-221 for purposes of the out-of-state tax credit. 'Earned income' is defined as wages, salaries, or professional fees and other amounts received as compensation for professional services actually rendered. See 23 VAC 10-110-221 B2. 'Business income' is defined as income derived from an activity which constitutes a business for federal income tax purposes for which federal Schedule C, E, or F must be filed. See 23 VAC 10-110-221 B3.
In addition to this general out-of-state credit, Va. Code § 58.1-342 B grants the Department the authority to enter into an agreement with another state to exempt nonresidents from the Virginia income tax when they receive compensation from working in Virginia if such other state similarly exempts Virginia residents. Virginia entered into such an agreement with West Virginia in 1988 (see enclosed). This reciprocity agreement exempts Virginia residents from the West Virginia income tax and from the requirement to file a West Virginia income tax return with regard to compensation paid in West Virginia. In exchange for this treatment, West Virginia residents are exempt from the West Virginia income tax and filing requirements for compensation paid in Virginia.
Similar to the general credit under Va. Code
Gambling Winnings Taxes Calculator
§ 58.1-332 A, the terms of the reciprocity agreement apply only to specified types of income. For purposes of the reciprocity agreement, 'compensation paid in West Virginia' is compensation described in W. Va. Code § 11-21-41, which includes salaries, wages, or compensation for personal services performed in West Virginia.In this case, the Taxpayer received gambling winnings from slot machines located in West Virginia. The Department has held on numerous occasions that gambling winnings are generally not earned or business income for purposes of the out-of-state tax credit. See P.D. 99-47 (4/2/1999), P.D. 98-159 (10/20/1998), P.D. 95-171 (6/23/1995), P.D. 95-164 (6/22/1995), and P.D. 95-152 (6/12/1995). The Taxpayer's gambling winnings from slot machines are not earned income because the income was not compensation from professional services rendered.
Nor has the Taxpayer demonstrated that her gambling winnings consist of business income. For an individual's gambling activities to be considered a trade or business, the gambling activities must have been pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and not a mere hobby. See C.I.R. v. Groetzinger, 480 U.S. 23 (1987), and P.D. 95-152. Unless the Taxpayer provides facts showing that her gambling activities met the above requirements, the Taxpayer's gambling winnings are not considered business income and do not qualify for the out-of-state tax credit.
It is well-established that the taxation of income by more than one state is not unconstitutional. The Supreme Court held that the Due Process Clause does not prevent the taxation of personal income by more than one state. See Curry v. McCanless, 307 U.S. 357 (1939) and Graves v. Elliott, 307 U.S. 383 (1939). The Supreme Court also held that double taxation alone does not violate the Equal Protection Clause. See Illinois Cent. R. Co. v. State of Minnesota, 309 U.S. 157 (1940), Guaranty Trust Co. of New York v. Commonwealth of Virginia, 305 U.S. 19 (1938), and Ft. Smith Lumber Co. v. State of Arkansas ex rel. Arbuckle, 251 U.S. 532 (1920). Therefore, there is no legal authority preventing Virginia and West Virginia from imposing taxes on the Taxpayer's gambling income.
For the foregoing reasons, the Taxpayer will not be eligible to receive the out-of-state tax credit for gambling winnings from slot machines located in West Virginia unless she demonstrates that her gambling activities constituted a trade or business for federal income tax purposes. The Code of Virginia provisions and regulations cited, along with other reference documents, are available online in the Laws, Rules & Decisions section of the Department's website, located at www.tax.virginia.gov. If you have additional questions, please contact ***** in the Office of Tax Policy, Policy Development Division, at *****.
- Sincerely,
Claim Gambling Winnings On Taxes
Craig M. Burns
Taxes On Gambling Winning Slot Machines Jackpot
Tax Commissioner