In its May 2018 decision, the U.S. Supreme Court opened the door for legalized sports betting. Since the ruling, companies like DraftKings, FanDuel, and BetMGM have built a national presence along with some states’ online casinos. However, many are still unsure how to report winnings and/or losses. Whether it is traditional or online gambling, or sports betting, the IRS treats it all the same. Let’s dive into how the IRS treats these winnings and how losses can be a tax benefit for certain individuals.
All gambling winnings are considered taxable income. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races and casinos, as well as the fair market value of prizes such as cars, houses, trips, or other noncash prizes.
In simple terms, if you win, you have taxable income, and it should be reported when you file your tax return that year. Based on your personal income tax and tax bracket that year, taxes are due on the winnings earned.
Form W-2G reports gambling winnings to the IRS. The form tells the IRS your personal contact information, amount won, date of earnings, type of wager made, and taxes withheld.
This form is submitted by casinos, racetracks, and other gaming organizations in the following situations:
- Winnings are $1,200 or more from a bingo game or slot machine
- Winnings are $1,500 or more from a keno game
- Winnings are more than $5,000 from a poker tournament
- Winnings reduced by the wager are:
- $600 or more, and
- At least 300 times the amount of the wager; or
- Winnings are subject to federal income tax withholding.
Generally, if you receive $5,000 or more in gambling winnings, the payer may be required to withhold 28% in federal income taxes at the time your winnings are received. If a Social Security number is not provided at the time of distribution, the withholding rate increases to 31%.
For winnings less than $5,000, taxes would be paid when your tax return is filed.
Like other taxable income, if gambling income is not reported, penalties and interest could apply.
When wagering, there is the chance of incurring losses. For tax purposes, gambling losses are tax deductible if you itemize your deductions and can provide detailed records of your winnings and losses. Detailed records could be a diary of receipts, tickets, or other records that show accurate amounts of bets made. Many casinos can provide a detailed history of betting transactions tied to an individual’s player’s card.
Unfortunately, gambling losses are not allowed to exceed gambling winnings received each year. For example, if you have $7,000 in winnings, only $7,000 of losses can be deducted on Schedule A. Any excess losses would not be deductible and cannot be carried forward for future tax years.
If you have incurred gambling winnings, make sure to keep detailed records of all your wagering transactions and consult with your tax professional about your reporting requirements. Don’t ever bet on the IRS not finding out about your winnings!