Do You Pay Taxes on Gambling Winnings? What To Know After a Casino Jackpot
Written by
Rudri Bhatt Patel, CFHC™
Edited by
Elizabeth Constantineau, CFHC™
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Gambling winnings are taxable, even if the amount was small, no tax was withheld or you didn’t receive a tax form. Taxable gambling income includes cash and prizes from casinos, lotteries, game shows, sports betting and poker tournaments. Here’s what to know about paying taxes on gambling winnings.
Why Gambling Winnings Are Taxable
Gambling winnings increase your wealth. The tax code views this money as taxable, and the amounts are taxed as “other income.”
Having your gambling winnings taxed is similar to being taxed for earnings from employment or from investments. Prizes like cars and electronics are also considered taxable at their fair market value.
What Counts as Gambling Income
Cash Earnings
- Casino winnings at a poker game, slot machine or blackjack
- Any cash games or poker tournaments
- Lottery winnings or payouts, including scratch-off tickets
- Sports betting
- Game show winnings
- Raffle ticket winnings
Non-Cash Earnings
These non-cash earnings are taxable at fair market value.
- Cars
- Electronics
- Trips
- Merchandise
How Gambling Winnings Are Taxed
Gambling winnings are treated like wages. As a result, they are treated as ordinary income like a salary. If your winnings are substantial, they can push you into a higher tax bracket.
When you have a large win from a casino, the casino may withhold federal taxes. However, when you file your return, your winnings are factored in as part of your entire income.
You may owe more money if not enough was withheld, or you may be owed money if too much was withheld.
When Casinos Report or Withhold Taxes
There are certain circumstances that require a casino, sportsbook or other similar entity to issue a Form W-2G.
- Bingo and slot machines: If you earn $1,200 or more from your games or slots
- Keno: If you earn $1,500 or more after subtracting the amount of the wager
- Poker tournaments: If you earn more than $5,000 from your games
- Lotteries or sweepstakes: If you earn more than $600 or if your winnings are at least 300 times more than your wager
Games That Commonly Do Not Trigger W-2G Reporting
- Smaller wins that are under the monetary threshold do not trigger a report.
- Multiple wins that don’t meet the threshold won’t require reporting.
- Wins from slots, keno and bingo won’t trigger a warning unless they exceed the money threshold.
Non-Cash Prizes and Big Wins
Non-cash prizes and big wins have tax consequences.
- Cars, electronics, jewelry and other merchandise will be taxed at fair market value.
- The IRS will tax you in the year that you won your prize.
- If you win big, especially if the amount goes over the respective threshold, it will trigger an issuance of Form W-2G.
- A bigger win can push you into a higher tax bracket, and you may owe state taxes, too.
Keep In Mind
If your winnings exceed $5,000 and meet the Internal Revenue Service (IRS) wagering requirements, the payer must withhold 24% for federal taxes. The payer will also report both the winnings and the tax withheld on Form W-2G.
How To Report Gambling Winnings on Your Tax Return
You generally report winnings first and then losses. Here’s a step-by-step guide on how to report your gambling winnings:
- Step 1: Add up your winnings. Total your cash earnings and the fair market value of any non-cash earnings.
- Step 2: Winnings should be reported as income. You will report your winnings on Schedule 1, Part 1 as “Other Income.”
- Step 3: Include any withheld taxes. Under the payments section, report what is listed on your Form W-2G.
- Step 4: Itemize deductions. If you choose to itemize deductions, you can note your losses on Schedule A. You can only report losses up to the amount of your winnings.
Can You Deduct Gambling Losses?
It’s possible to deduct gambling losses, but certain rules apply.
- You must itemize your deductions: You cannot deduct gambling losses if you use the standard deduction.
- You can only note losses up to the amount you won: For example, if you won $3,000 and lost $5,000, you can deduct only up to $3,000.
- Keep good records: Make certain you keep thorough records of receipts, earnings, bank statements and gambling logs.
Record-Keeping That Matters
The IRS wants you to keep track of your wins and losses. Here’s a quick list of what records matter:
- Casino receipts and payout tickets
- Bank and credit card statements
- Form W-2G
- Winning and losing tickets
- Detailed gambling logs
- Travel or entry fee receipts
State Taxes on Gambling Winnings
Here are some general rules of thumb you should keep in mind regarding state taxes on gambling winnings:
- Gambling winnings are typically taxed as ordinary income in most states.
- Even if you don’t live in the particular state where you won, you’ll likely be taxed by its taxing entity.
- Sometimes your home state will tax your winnings.
- If you live in a state where there is no income tax, you may not have to pay state taxes.
What To Do Immediately After a Big Win
Take steps immediately after a win so you won’t face hassles later. Here’s what you should do:
- Secure documentation: Keep any payout receipts, as well as any forms.
- Pay attention to your withholding: You want to see if any state or federal taxes were withheld because it will impact your taxes later.
- Separate funds for taxes: Don’t spend all your winnings. Reserve some funds to pay for taxes.
- Keep a log: Make sure you track all your wins and losses.
- Seek professional advice: You may want to contact a financial advisor if you have big winnings.
If You Can’t Pay the Tax Bill
What if you’re unable to pay your tax bill? It isn’t the end of the world, and you do have some options:
- Move forward with filing your taxes. You want to prevent any penalties for delays in filing.
- You can set up a monthly payment plan with the IRS.
- Depending on the situation, you may be given a short extension to pay.
- If you have a medical illness or another hardship, the penalty may be reduced.
- In special circumstances, the IRS may give you an offer of compromise, which is essentially paying less than the amount you owe.
Quick Examples
- Smaller win: If you win $1,000 at a casino, you won’t necessarily receive a W-2G, but you’ll be required to report your winnings on your federal — and possibly state — tax return.
- Large jackpot: If you win $100,000 or more, the casino will automatically withhold 24% for federal taxes and issue a Form W-2G. You must still report the income, and you may owe additional tax — or receive a refund — depending on your tax bracket.
Common Mistakes and Compliance Risks
Here are some common mistakes you want to avoid when it comes to reporting your gambling winnings:
- You failed to report your gambling winnings. Even if you don’t receive a W-2G or your winnings were small, you still need to report your winnings.
- You didn’t keep documentation. If you failed to keep your receipts, tickets or gambling logs, it may mean trouble if the IRS decides to audit you.
- You think that losses automatically cancel winnings. You have to report losses separately, and you can only do so if you itemize your deductions. You can only report losses up to the amount of your winnings.
- You ignore state taxes. You owe federal taxes, but you must also check if you owe state taxes, too.
- You equate frequent gambling with a business expense. Frequent gambling doesn’t make you a professional gambler. You need to meet the threshold for your gambling winnings for the amount to qualify as a business expense.
Key Takeaways
Winning a casino jackpot is thrilling, but it also means you’ll need to find a way to manage your finances and prepare for tax season. Here are a few takeaways:
- All gambling winnings are considered taxable income.
- Non-cash prizes like cars, electronics and trips are valued at fair market value.
- For large winnings, you will be issued a Form W-2G.
- You will pay taxes in the state where you win and in your home state, too.
- Be sure to keep good records of your wins and losses.
Taxes on Gambling Winnings: FAQs
Gambling winnings can raise a lot of tax questions — here are clear answers to the most common ones.- Do I owe taxes if the casino didn't issue a W-2G?
- All gambling winnings are taxable, whether or not you received a form.
- Can I deduct gambling losses?
- You may deduct gambling losses if you itemize your deductions. However, you can only deduct losses up to the amount of your winnings.
- Are non-cash prizes taxable?
- Non-cash prizes like cars and electronics are taxable.
- Do I owe state taxes if I won out of state?
- You usually pay taxes in the state where you won and in your home state.
- What if taxes weren't withheld?
- You still need to report your winnings on your taxes and may need to pay an amount since no money was withheld.
- How are professional gamblers treated differently?
- They report their funds as business income.
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