Gambling Winnings Tax: What to Know

Gambling in the US will require that you pay tax on any winnings. The Internal Revenue Service (IRS) states that you must declare your gambling winnings and your losses on your tax returns.

You may be asking yourself, how are gambling winnings taxable? A lot of recreational gamblers aren’t actually aware of this and can get into some pretty serious trouble if they fail to fill in the correct forms at the right time. Reporting casino winnings and losses should be treated in the same way as if you were running a business.

In fact, seeing gambling as a business is one of the single best ways to approach the gambling winnings tax. Making detailed reports, keeping records, and being upfront about money in and out is imperative to keeping the IRS at bay.

Do Professional Gamblers Pay Tax?

A professional gambler also must report gambling income in the US. Like we mentioned above, they should see this as a business and approach the gambling winnings tax in the same way.

A key point to note with all gamblers, but especially professionals are to report gambling winnings and losses separately. This may sound obvious, but many players simply record their net win or loss, and this might not work out as well for them in the long run.

The IRS will only charge tax on any profits made like they would any business. So, if you state that the winnings for your tax year were $10,000 but you lost $11,000, then you would only deduct $10,000 of the gambling losses that occurred.

By stating a net amount for the year, it means that you may be paying tax in areas that you shouldn’t.

Recreational Gamblers

Regardless of if you are playing professionally or recreationally, you will need to report your winnings and your losses on your tax return. Your gambling income will be attached to any income that you have from your full-time job.

For example, if you were earning $50,000 a year from your job and you won another $10,000 from gambling, your income would increase to $60,000. You need to be upfront about these numbers from the start as the IRS will note this on the interview for your return.

Everything must be reported to the IRS, which means that you need to note everything that you gamble throughout the year. If you are playing at legal gambling sites in the US, most will allow you to see previous bets and your betting history for the last 12 months.

However, if you are gambling live in a casino or at a racetrack, then you need to keep notes of how much you have won and lost. There are many spreadsheets online that you can download to quickly fill this sort of information in relatively easily. Most are mobile-friendly as well, meaning you can track on the go.

You will also need to state any non-cash winnings as well. This might include cars, boats, electronics, raffles or lotteries. A market value will be taken for the product and then this sum is added as gambling winnings on your tax return.

What Is the Tax Rate?

You will be taxed at the standard rate of 25%. Gambling income is not classed under a progressive rate meaning that, if you win $1,000 or $100,000 the rate will remain at $25,000.

As a recreational player, the majority of casinos will deduct the gambling tax for you when you come to claim your winnings. If you were to cash out $10,000, they would keep the $2,500 and give you $7,500, with the funds already deducted from your tax return.

If they don’t do this or you request that you want to want to do this manually, then you may have to pay a slightly higher rate of 28%. If you fail to provide your taxpayer identification number (tax ID) for whatever reason, this higher rate will almost always be applied to you.

Gambling Tax Forms

There are several gambling tax forms that you need to familiarize yourself with when it comes to reporting gambling winnings and losses.

W-2 G

This is the most common form that you will need to be accustomed to. You need this to report any gambling income and if there is any tax that has been held on those winnings.

A W-2 G form will need to include the player’s name, address, federal ID number, telephone number, amount of gambling winnings, date won, types of wager, amount of tax withheld, transaction type, cashier, state winnings, state tax and then confirmation from the player and the person issuing the form.

These forms must be filled out correctly. It’s very common for casinos and other gambling establishments to mistakenly state that they have not taken tax when they actually have. This would mean that the player would have to pay almost double the required tax amount.

Form 5754

If you come across the scenario where you are a part of a group win then you will need to fill in form 5754. You still need to pay tax on group wins, but the money is distributed amongst the players and therefore the tax is also spread out.

This form will include details on the date won, type of winnings, game number, machine numbers, race number, name of persons to whom gambling winnings are paid, their address, ID number, the amount received, federal income tax withheld, and the persons to whom winnings are taxable.

These processes will work with the payout being made to a single individual and then the money is distributed by them to the rest of the group. The form will highlight how much has been won and how much each person has received.

Form 1040 Schedule A

Form 1040 Schedule A is all about taxable deductions. For gambling, this is essentially the total losses from the year. We spoke earlier about this, but gambling losses must be included alongside winnings as they will be subject to different deductions rather than simply a net win/loss for the year.

This form is a generic one that is not gambling-related. You can use it to file all your deductions for the year. You will need to fill in “Other Itemized Deductions” on line 16 for gambling losses.

Remember that with gambling activity you cannot deduct all your losses, but you can deduct up to your winning amount. So, if you lost $6,000 and won $5,000, the most you could deduct would be $5,000.

How Best to Track Your Records and What Records You Need to Keep

There’s lots of data that you need to keep a record of. The confusing thing for most is that not all gambling activities require the same amount of tracking as others.

As a rule, the IRS state that it’s important to keep track of the date you played, type of gambling, amount of winning or losses, location information (address etc.), and names of people present. If you do this then it’s likely you’re going to be pretty safe should they need to contact you about any discrepancies.

As we mentioned earlier, there are plenty of downloadable spreadsheets and apps that you can use to track all of this. It will make completing your tax return so much easier and a lot more accurate.

Foreign Nationals

Places like Las Vegas are a hive for people from all over the world to come and gamble. If they need to pay taxes on gambling income will depend on several factors.

The first one is if they are tied to any country that is exempt from paying taxes in the US. These include:

• Austria
• Belgium
• Bulgaria
• Czech Republic
• Denmark
• Finland
• France
• Germany
• Hungary
• Iceland
• Ireland
• Italy
• Japan
• Latvia
• Lithuania
• Luxembourg
• Netherlands
• Russia
• Slovak Republic
• Slovenia
• South Africa
• Spain
• Sweden
• Tunisia
• Turkey
• Ukraine
• United Kingdom

If a player is from outside of these countries, then the next thing that the IRS will look at is the time spent in the country. If it is deemed that they are there for pleasure and not a professional gambler, then usually they won’t have to pay gambling taxes. This is based on a rolling 3-year period.

If players do not fall into this category and are not from one of the countries listed above, then they will be subject to 30% tax deductions.

Final Thoughts

There is not much in the US that doesn’t have tax slapped on it from the IRS, and gambling is no exception. Players must keep detailed records of when and where they were playing and how much they won and lost in each session.

Make sure that gambling winnings and losses are classed separately as it may mean you get more deductions. Please keep in mind that some casino and betting sites will deduct tax automatically and others will require you to do this on your own. Just as it’s important to keep a tab on the legal gambling age and other state-specific restrictions, it’s also essential that when you are of age you properly document your casino wins and losses accordingly.

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