Gambling Winnings And Taxes

A win is income before it is anything else. The IRS treats gambling winnings as taxable income, reported as other income on Schedule 1 of Form 1040, whether or not the payer sends you a Form W-2G.

What the IRS Counts As Taxable Gambling Income

Under US tax law, gambling winnings occupy the "other income" line.

It includes winnings from the lottery, horse races, casinos, and legal sports betting. Even if you don't receive a Form W-2G, the IRS expects you to report all winnings on your tax return. Failure to do so may lead to penalties or even a tax audit.

When A Payer Must Issue Form W-2G

Form W-2G is a specific form that reports gambling winnings to the IRS. The payer of the gambling winnings is responsible for filling out this form, and it must distribute it by January 31 each year.

A payer must issue a W-2G to report gambling income as follows:

• $1,200 or more in winnings from bingo or slot machines
• $1,500 or more in winnings from keno, reduced by the amount of the wager
• $5,000 or more in winnings (reduced by the wager) from poker tournaments
• $600 or more in winnings (except the above) with a payout of 300 times the wager
• $600 or more in winnings from wagering transactions, including horse and dog races

If any of these conditions are met, you will receive a W-2G from the payer.

When Federal Tax Is Withheld

If your gambling winnings are more than a certain threshold, the payer must withhold 24% of the total winnings. The federal income tax withholding rate is a flat 24% and applies when:

• The winnings (less the wager) exceed $5,000, and
• The winnings are at least 300 times the total amount of the wager.

The type of winnings matters: this flat-rate withhold applies to:

• Bingo or slot machines
• Keno
• Sports wagering
• Lotteries
• Horse races, dog races, or jai alai events
• Wagering pools

In short, the W-2G tells you what you have won, and the withholding tells you how much federal tax the payer deducted before paying you.

The IRS also allows you to deduct gambling losses, but with restrictions. You can claim your gambling losses up to the amount of winnings you report as income. The catch? The IRS allows you to only take gambling losses as an itemized tax deduction. If you do, you need records of what you staked and what you lost — tickets, statements, receipts and a contemporaneous log — because the deduction stands or falls on that documentation.