After a wildly successful night of gambling in Vegas, you wake up to find sitting next to you on the nightstand is a Form W2-G. What is that and what am I supposed to do with it?!?! Or let's say you've donned your fanciest hat, traveled to location to enjoy the Kentucky Derby and learned you won the Trifecta bet. Or better yet, you were the ONE person who picked UMBC to beat Virginia in the 2018 NCAA March Madness Tournament and won $10,000!
Did you know gambling winnings in all those instances are considered taxable income and should be reported on your Federal tax return?
You are required to pay taxes on cash prizes from gambling winnings from items like the lottery, horse races, and slot machines. If you win or receive a non-cash prize (flashback to Oprah Winfrey surprising her studio audience members with, “You get a car…You get a car!”), you still must pay taxes based upon the fair market value of the prize! So what Oprah should have also reminded everyone was, “You Get to Pay Taxes!...You Get to Pay Taxes!”
While you are supposed to report all money you win, the IRS has established the following thresholds:
- $600 or more at a track (if the amount won is at least 300 times your bet)
- $1,200 or more at bingo or on slots
- $1,500 or more from winning Keno
- $5,000 or more from a poker tournament (assuming you are not a professional gambler)
The “good” news about taxes on gambling winnings is that it's not a progressive tax like we see with income but rather it's a flat 25% on the prize. So if your winnings meet the thresholds above, the casino or race track will withhold the 25% from your winnings and issue you a Form W2-G. The W2-G will detail your winnings and any tax withheld and should be kept with your tax records.
To further complicate matters, not all winnings will have a W2-G issued, so don’t think you are exempt if you don’t receive one when the craps table was hot! Table games -- craps, blackjack, and roulette for example -- don’t require this form or withholding, but taxes are still due!
But what if you were a big winner at the craps table on one night and then the next night lose it all by betting on red at the Roulette table? Do you have to report that?
Gambling losses may be used to offset gambling winnings, but they can't be used to offset regular income or investment gains. This means you can't use gambling losses to produce an income loss, and they cannot be carried forward to future years.
If you choose to deduct gambling losses, you will need to file a Schedule A with your 1040 and keep detailed records of winnings and/or losses. The IRS requires the following info: date, type of gambling, name/address of event, others with you, and amounts won/lost. Gambling losses are part of “Other Miscellaneous Deductions,” so they were not affected by the Tax Cuts and Jobs Act (TCJA), which eliminated or decreased certain itemized deductions. Even if you don’t itemize your taxes, you can still use gambling losses to offset gambling winnings!
**Note: All tax information discussed above pertains to Federal taxes. Keep in mind that each state also has its own tax rules for gambling winnings, so be sure to report and pay taxes owed as appropriate to your state of residence.