Every year, thousands of people travel to gambling hotspots such as the Nevada cities of Las Vegas and Reno with the hope of winning big in a casino. While most of these dreamers' wallets are thinner on the return trip than when they arrived, a lucky few carry home a lot of money. If you win big while gambling in Las Vegas or Reno, you do not get to keep every penny, alas. Gambling winnings are taxable, and the Internal Revenue Service (IRS) wants its share of your casino loot. Before embarking on your Vegas trip seeking riches, make sure you understand the tax law as it relates to gambling to avoid a mess with the IRS down the road.
Is Gambling Income Taxable?
The answer is yes, but the good thing about gambling tax law for big winners is that, unlike income taxes, gambling taxes are not progressive. Whether you win $1,500 at the slot machine or $1 million at the poker table, the tax rate you owe on your gambling winnings always remains at 25%. When you win a big slot machine jackpot, the casino is required to withhold the 25% itself when you claim your prize; it also provides you with an IRS form, called a W2-G, to report your winnings to the government.
- Unlike income taxes, gambling taxes are not progressive.
- The IRS considers any money you win gambling or wagering as taxable income.
- The threshold for which gambling winnings that must be reported to the IRS varies based on the type of game.
What Does the IRS Consider Gambling Income?
The IRS considers any money you win gambling or wagering—or the fair market value of any item you win—to be taxable income. Gambling income isn't limited to just card games and casinos; it includes winnings from racetracks, game shows, lotteries, and even bingo. There are strict record-keeping requirements, but you may be able to deduct gambling losses.
Do Casinos Report Gambling Earnings to the IRS?
Yes, but there are certain thresholds that must be eclipsed to trigger a casino to report winnings. The threshold for which gambling winnings that must be reported to the IRS varies based on the type of game. At a horse track, you must report any winnings that exceed either $600 or 300 times your initial wager. For slot machines and bingo, you are required to report all winnings in excess of $1,200. In a poker tournament, you must report winnings above $5,000.
However, casinos are not required to withhold taxes or issue a W2-G to players who win large sums at certain table games, such as blackjack, craps, and roulette. It is not entirely clear why the IRS has differentiated the requirements this way; slot machines are games of pure chance, while table games require a level of skill. When you cash in your chips from a table game, the casino cannot determine with certainty how much money you started with.
Even if you do not receive a W2-G or have taxes withheld from blackjack winnings, this does not absolve you of the obligation to report what you won to the IRS. You simply do it yourself when you file your taxes for the year rather than at the casino when you claim your winnings.
Taxes for Professional Gamblers
If gambling is a person's actual profession, then gambling proceeds are usually considered regular earned income and are taxed at a taxpayer's normal effective income tax rate.
As a self-employed individual, the income and expenses must be recorded on Schedule C.
A professional gambler can deduct gambling losses as job expenses using Schedule C, not Schedule A.
Gambling Income Tax Requirements for Nonresidents
The IRS requires U.S. nonresidents to report gambling winnings on Form 1040NR. Such income is generally taxed at a flat rate of 30%. Nonresident aliens generally cannot deduct gambling losses. There is a tax treaty between the United States and Canada. It allows Canadian citizens to deduct their gambling losses, up to the amount of their gambling winnings.
Are Gambling Losses Deductible?
You are allowed to deduct any money you lose gambling from your winnings for tax purposes. However, gambling losses in excess of what you win may not be claimed as a tax write-off. When you lose your shirt in Vegas, there is no silver lining in the form of reduced tax liability.
Do Individual States Tax Gambling Winnings?
Some states do require gambling winners to claim the gambling winnings in the state where they were won. Most states tax all income earned in their state, regardless of your residency. In addition, your resident state will require you to report the winnings but will offer a credit or deduction for the taxes already paid to a non-resident state.