Whether you play once or twice a year or you’re someone who frequents a brick and mortar or online casino quite often, you have an obligation to pay gambling winnings tax — with US taxman taking its share whenever you get lucky and win. In the following article, we’ll explain everything you need to know about gambling winnings and tax in the US and, hopefully, shed some light on the topic.
Gambling Winning Tax Hard Facts
- All gambling winnings are taxed at 25%
- In some states, you’ll need to pay gambling winnings state tax
- All online casino winnings are subject to taxation as well
- You can deduct some of your gambling losses when filing
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Gambling Tax 101: What You Need to Know
In the United States of America, any and all forms of income are subject to the income tax. This includes any money derived from gambling activities, which covers a very wide spectrum:
- Horse & dog races
- Slots
- Casino games
- Poker tournaments
- Lotteries
- Sweepstakes
- Keno
When it comes to getting its share, as you can see, the US doesn’t discriminate. While there are some important differences between games such as poker, blackjack, and slots, it is all one and the same in the eyes of the IRS. Any time you win, you’re technically required to include this as a part of your income on your tax report, so be sure to factor that into your casino bankroll management strategy.
While it may be your duty to report all winnings derived from gambling, land-based casinos have some room in terms of thresholds they are required to report to the IRS. If your win is below this threshold, you’re still required to report it but there is no actual paper or electronic trail of the win, so it is pretty much down to you and your civic conscience.
As far as these thresholds are concerned, they’re as follows:
- Any win in excess of $5,000 in a poker tournament
- A win over $1,200 on slot machines
- $600 for horse race winnings (but only if the win is more than 300x the stake)
- $1,500 for keno games
So, once again, this doesn’t mean that you’re not required to pay taxes on casino winnings under these thresholds; it just means that the casino or the gambling venue isn’t required to report on your winnings. While we may be repeating ourselves here, it is very important to understand this as people often misinterpret this as not being liable for taxes on winnings that are below these amounts, which isn’t correct.
Now that we’ve covered some of the basic facts, we can move on to the most important part, which is how much you’re actually required to pay. The standard rate is 25% on all your gambling winnings, which goes towards federal tax. So, if you win $2,000 playing slots, $500 of it will go to Uncle Sam.
So, if you were ever wondering are gambling winnings tax free if you fall within the gambling age restrictions, you have your answer now. While there are some countries around the globe that don’t apply taxes to money originating from gambling winnings, the US isn’t one of those countries. Whether you're playing at Delaware online casinos or California casinos, there's going to be some form of tax you'll need to pay on your winnings.
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Gambling Winnings State Tax
In addition to 25% tax that’s paid on the federal level, you may also be liable for state taxes. This really varies from one state to another as some states, like Nevada, don’t have any additional gambling winnings state tax. Other states, however, aren’t nearly as gambler-friendly, and you may be liable to pay additional few percentages on your total win. To know for sure, it is best to check out your particular state law dealing with this subject.
If you ever asked yourself, "Is it legal to play in an online casino from another state?" the answer is no. The reason stipulated in the above paragraph is one of many issues that cross-state gambling provides. Out-of-state citizens cannot be forced to pay taxes on a state level, causing legal issues.
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Online Casinos & Gambling Winnings Tax
While there are many differences between playing at a top online sportsbook and in a live casino, there is absolutely no difference when it comes to gambling tax rates. You’re still obliged to pay 25% on any winnings you get online and it is your duty to keep clean and accurate record of these transactions and include them in your annual tax filing.
As far as the IRS is concerned, there is no difference whether you’re playing on a state-licensed site or your wins came from an offshore casino. While you aren’t supposed to play at offshore, unregulated sites, and some states (albeit not very many) even make it a criminal offense, you’re still on the line to pay taxes on any money you manage to win.
While this may seem strange and even unfair to a certain degree, the USA has some of the strictest and harshest tax laws. If you gamble a lot, it is probably a good idea to try and keep up with any gambling winnings tax changes to make sure you aren’t missing out on any important novelties. This way, you can avoid many complications down the line but also manage to save some money if some recent changes actually allow you to do so.
So, to sum it up, you’re always liable for at least 25% tax on any and all of your gambling winnings regardless of whether they originate from a land-based venue, a state-licensed online casino, or an online operator. That said, you may be able to claim some of your losses back when doing your gambling winning tax reporting.
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Gambling Losses Tax Deductions: Softening the Blow
Up to this point, we’ve explained how all gambling winnings are taxable and how you’ll have to pay at least 25% on your winnings. However, most of us are well aware that there is no such thing as winning in gambling in the long run (except for some special cases), so you’re very likely to have more losing years than winning years.
In the USA, you will be able to offset some of your losses through the gambling losses tax deductions but you’ll need to keep very accurate and clear record of your gambling activities and have required documents such as receipts to go substantiate your records.
According to current gambling winnings tax regulations, you’re allowed to deduct an amount of losses that doesn’t exceed the amount of your total winnings. So, for example, if you had $10,000 in winnings in a tax year and your total losses amounted to $15,000, you’ll be able to deduct a total of $10,000. You’ll still have to pay taxes on the remaining $5,000.
While this certainly doesn’t seem like the fairest way to do things, the reasoning behind this decision is that the IRS wants to prevent people from using these deductions to offset taxes on other types of income. Given the fact gambling activities are sometimes hard to keep track off and it would be very hard to know if someone is actually telling the truth at all times, this explanation does make some sense but still doesn’t seem like the best solution.
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Professional Gamblers & Taxes on Casino Winnings
Everything we’ve covered so far relates to casual gamblers regardless of how often or how high they play. Professional gamblers make up a special group that is treated differently for the purposes of taxation. If someone registers as a professional gambler, they’re announcing gambling is their occupation, which makes it their primary source of income.
In this case, all income is treated differently and it is taxed at the regular income rate, which differs from one state to another. Professional gamblers can also deduct their costs differently but they need to keep clean and accurate records of their activities and any expenses related to their occupation.
While the idea that someone could play slots for living does seem a bit out there, there are people in Las Vegas who have been doing it successfully for years. It takes time, effort, and a lot of knowledge about what games to play and when, but it can be done and you can, in fact, be a successful professional gambler or poker player.
Stay Out of Trouble: Stick to Licensed Sites When Gambling Online
As you can see, when it comes to taxes, the IRS doesn’t discriminate and you’re expected to pay taxes on any and all of your gambling winnings. If you’re playing with offshore sites, this can become a real nightmare as you’ll have difficulties explaining where the money came from in the first place, which can lead to more problems down the line. So, stay out of trouble and stick to state licensed casino sites!
Or, if you enjoy the thrill of a casino but don't really want to spend any real cash, you could always try a social casino. While these do offer in-app purchases, you can play plenty of games for free. A lot even put on special offers, such as the House of Fun free coins and spins and High 5 casino free coins offers that let you play for longer!
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Have Fun & Pay Your Taxes
This article tried to answer many important questions, such as are gambling winnings tax deductible and are you required to pay taxes on all of your casino winnings. Hopefully, you now know everything you need to know about this topic and you’ll be able to stay out of trouble with the taxman. So, have fun, enjoy your online gambling adventures, and don’t forget to pay what you’re due and you’ll be fine!
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