1. Filing Taxes With Gambling Winnings

According to the IRS, a gambling establishment should issue a W-2G when you win an amount that’s subject to federal income tax withholding (24% of win). Slot machines present a famous example of when you’ll receive a W-2G form after winning so much. You can’t deduct the cost of your wager from your winnings when determining how much you won, but you can deduct your gambling losses subject to certain rules. You must itemize your deductions to claim your gambling losses as a tax deduction. File Form W-2G, Certain Gambling Winnings, to report gambling winnings and any federal income tax withheld on those winnings. The requirements for reporting and withholding depend on the type of gambling, the amount of the gambling winnings, and generally the ratio of the winnings to the wager. File Form W-2G with the IRS. All winnings that you realize in a casino are taxable as income, both on the state and federal levels. So, you should be reporting those wins on your annual tax returns. Though many people scoff at the notion of reporting cash income to the government, it counts the same as income from a check or direct deposit in the eyes of the taxman.

Taxes are probably the last thing on your mind during an exciting gambling session. However, they inevitably come up following a big win or profitable year.

You may have two main questions at this point:

• Do I need to pay taxes on my wins?
• If so, how much do I have to pay?

The following guide discusses whether your gambling wins are taxable and other important topics regarding this subject.

The Short Answer Is Yes

I’ll cut right to the chase: yes, you do need to pay federal taxes on gambling winnings in the United States. This is especially true when you net a big win and receive a W-2G form.

According to the IRS, a gambling establishment should issue a W-2G when you win an amount that’s subject to federal income tax withholding (24% of win).

Slot machines present a famous example of when you’ll receive a W-2G form after winning so much. Casinos must issue a form when you win a prize worth $1,200 or more through slots or video poker.

As for the second point, a sportsbook or racetrack must withhold federal taxes when you win a bet worth 300x your initial stake. If you wager $5 and win $3,000, for example, then the bookmaker will issue a W-2G form and withhold $720 (24%).

Here’s a broader look at the W-2G and tax withholding threshold for different types of gambling:

• $600+ through sportsbooks and racetracks (provided it’s 300x your stake).
• $1,200+ through a slot machine, video poker machine, or bingo game.
• $1,500+ through keno.
• $5,000+ through a poker tournament.

All Winnings Are Subject to Taxation

Technically, you’re supposed to report any gambling winnings—big or small. Even if you win $20 in an office betting pool, the IRS wants to know about it.

If you want to stay above board, then you should report all wins on Form 1040 (under “other income”). As I’ll cover later, you can deduct losses from winnings as well.

Furthermore, any amount that’s withheld by a casino, poker room, sportsbook, or racetrack is deducted from what you owe. Gambling establishments keep 24% of a win when they do withhold money.

W-2G Forms Don’t Apply to Table Games

You’ll receive a W-2G when earning big wins through most types of gambling. However, casino table games are an exception to the norm.

Unlike a jackpot game (e.g. video poker) or a poker tournament, casinos have no idea how much money you start with in a table game. Therefore, they can’t really determine when you do and don’t experience big wins.

Examples of table games that are exempt from W-2G forms include:

• Baccarat
• Blackjack
• Caribbean stud
• Craps
• Roulette
• Three-card poker

The IRS still expects you to pay taxes on profits earned through table games. Again, though, the casino can’t issue a W-2G because they can’t tell how much money you’ve actually won.

Some States Tax Gambling Winnings

Most states tax your income, including gambling winnings. Depending upon where you live, you’ll probably need to pay taxes to both the IRS and your state.

For Example:

Michigan features a 4.25% flat income tax. The Wolverine State expects you to pay this same 4.25% rate on gambling wins.

West Virginia, on the other hand, doesn’t tax your winnings. Casinos/sportsbooks in the Mountaineer State only withhold federal taxes (when necessary).

Assuming you travel to another state to gamble, you may have two states wanting taxes. Luckily, though, you won’t be subject to double taxation.

Instead, your home state will give you credit for whatever taxes are paid to the state where the winnings occurred.

Can You Deduct Losses?

You can deduct gambling losses from winnings. However, these deductions are itemized rather than standard deductions.

Here’s an example to explain:

• You win $5,000 through sports betting.
• You lose $4,500.
• You must report the full $5,000—not $500 (5,000 – 4,500)—under other income.
• Meanwhile, the $4,500 is reported through various itemized deductions.

In short, itemized deductions are expenses that reduce your taxable income. The standardized variety includes flat-dollar, common deductions.

You may be able to save more money through itemized deductions. However, standard deductions are easier to deal with and also have the potential to save you more money.

Regardless, you must use itemized deductions when dealing with losses. This means spending more time on your tax returns or working with an accountant.

Keep in mind that you won’t receive a tax refund for gambling losses. Instead, you can only deduct an amount equal to your winnings each year. If you win $3,500, for example, then you can’t deduct more than $3.5k and expect a return.

Keep Records on Wins & Losses

The IRS may take your word at face value when it comes to gambling. Of course, they also have the ability to audit you when they deem it necessary.

That said, you don’t want to guestimate on your wins and losses. Instead, you want proof through the form of records.

Journals offer a great way to record your gambling activities. You can log the following for each entry:

• Date of gambling session
• Location of the establishment
• Game played
• Starting bankroll
• Ending bankroll

Such entries don’t guarantee you’re being honest. However, they at least show the IRS that you’re making a legitimate attempt at recordkeeping.

You can take your recordkeeping efforts even further by holding onto any other relevant documents. Betting slips, winning tickets, canceled checks, bank statements, W-2G forms, and anything else of relevance are all worth saving.

What Happens If You Don’t Report Gambling Winnings?

The IRS fully expects you to report gambling winnings and especially annual profits. They don’t take kindly to you failing to report these wins.

Of course, you’re unlikely to draw an audit for winning a $25 sports bet. You stand a higher chance of being audited, though, if you win enough for a W-2G form.

In this case, the casino/sportsbook/racetrack also sends a copy of the from to the IRS. The latter features reliable software that can match up your reported income with documentation of nonreported income.

Assuming you fail to report gambling winnings, then the IRS may do little more than send a letter and issue a small fine. You should definitely pay up, or at least work out a payment plan, in this case.

You’ll face more serious consequences, though, if you fail to report a huge win and lie about the matter when/if caught. Refusal to pay and/or heavy efforts to cover up the deceit will lead to bigger fines and possibly jail time.

Gamblers Stand Increased Chances of an Audit

Nobody likes attracting an audit from the IRS. Unfortunately, the chances of being audited increase for gamblers.

This is especially true when you net a big win and receive a W-2G. Of course, you can reduce the odds of being audited by claiming anything on the form.

The IRS may also become suspicious if you claim big losses on your tax return. You’ll put the taxman on increased alert when winning a huge prize (e.g. $50,000) and claiming a matching amount of losses.

Also, you can’t write off hotel stays, meals, and entertainment as a casual gambler. You must be a professional to claim such itemized deductions.

How Do Professional Gamblers Report Winnings?

Pro gamblers claim winnings on Schedule C as a self-employed person rather than as other income on Form 1040.

Even as a professional, you can’t deduct more losses than winnings in a year. You’re stuck in a tough situation with treating gambling as a day job, yet not being able to file losses that exceed winnings.

As mentioned before, though, you’re able to deduct business expenses like hotel stays and meals. These expenses just need to be a legitimate part of your business.

Conclusion

In answer to the original question, yes, you’re supposed to claim real money gambling winnings on federal tax forms. Even if you end up losing money on the year, the IRS wants to see your wins and losses.

Of course, tax collectors don’t care a great deal when you win $200 on the year. They spend most of their time looking for bigger winners.

The times when you want to be especially diligent in this matter include:

• When you book a large win and receive a W-2G form.
• If you win a significant amount of profits throughout the year.
• When you win 600x your bet with a sports or horse wager.

Again, the IRS and your state (if applicable) expect all gambling winnings to be reported. But you can use some commonsense in deciding when reporting wins are truly necessary.

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Gambling is fun. Taxes are not. Unfortunately, the two have to go together for anything to happen.

The truth of the matter is that for states like Michigan, the only real reason to legalize any form of gambling is the opportunity for tax revenue. Whether it be to pay for schools, roads, or some other unspecified project, most governments are always on the lookout for a new revenue stream.

Paying any taxes stings, to be sure. However, it’s important that you know how and when the taxman might come when you visit one of Michigan’s casinos. So, here is a guide for how taxes apply to Michigan gambling.

What is taxable in Michigan?

Throwing money around in a casino rarely seems like an official transaction. Whether you win or lose, the final disposition of your chips can often feel like a stitch in time.

Unfortunately, it’s not. All winnings that you realize in a casino are taxable as income, both on the state and federal levels.

So, you should be reporting those wins on your annual tax returns. Though many people scoff at the notion of reporting cash income to the government, it counts the same as income from a check or direct deposit in the eyes of the taxman.

Failure to report your gambling income could, in theory, land you in hot water with the Internal Revenue Service (IRS) or the state of Michigan’s tax office. In practice, those entities are unlikely to audit someone over a few hundred or thousand dollars, but that doesn’t mean that they can’t or won’t do so.

Also, please take note that non-cash winnings, like cars, boats, or other objects that you may win at a casino are subject to taxes too. The value that has transferred to you because of the win has increased your financial position, and the government wants its share of the loot. As a side note, game show prize winners have to do the same thing.

What taxes will I have to pay in Michigan?

Now that you’ve steeled yourself to the reality of giving away a portion of your sweet winnings to the government, you may be wondering who and what you’ll be forced to pay. As indicated earlier, you will be compelled to pay percentages to both the IRS and the state of Michigan for your wins there.

The IRS, for its part, will demand that you fork over 25% of your winnings to the feds for your troubles. This rate applies to wins of any size, so even if you win just a dollar, you’ll still need to throw a quarter at the taxman.

In addition, Michigan law requires that you pay an additional 4.25% to the folks in Lansing for having played in their casino. Even though the casinos themselves are the main wellspring of tax income for the state lawmakers, gamblers do not escape unscathed.

For smaller wins, you’ll essentially be on your honor to report your gambling winnings to the appropriate authorities. As stated earlier, it’s not legal just to stick the money into your pocket, but there’s no mechanism or watchful eye to force your compliance as you exit the casino.

That lack of oversight extends to wins up to $5,000. However, at that point, the casino itself is bound to collect 25% on the government’s behalf before it releases your winnings to you. Give the cage your name and Social Security number, and your tax bill will be settled before you leave the property.

Obviously, losing 25% off the top is a kick in the teeth, but please don’t get any ideas about simply withholding your name and SSN. As it turns out, anyone who refuses to provide their information (for any reason) will be subject to an additional penalty of 3%.

Neither option is good, but bear in mind that the casino is not going to keep a cent of that money that it withholds. So, you might as well go along with it and live to fight another day.

If I never win $5,000, will I ever have to pay taxes upfront?

If you’re not a high roller, the idea of ever reaching the federal threshold for casinos to report wins might seem far-fetched. After all, if you usually bet in $5 or $10 increments, it’s quite unlikely that you’ll realize a win that exceeds $100, let alone $5,000.

So, you may be wondering if you’d ever have to worry about the feds ever knowing that you were gambling. Unfortunately, there are some other scenarios in which the casino might have to report your win to the IRS before handing you the proceeds from your hard-fought victory.

A casino must report a win to the IRS with Form W-2G if any of the following events occurs:

• The total winnings, or combined bet and profit, on a slot machine exceed $1,200.
• A player’s keno profit on a game is more than $1,500.
• A poker player wins more than $5,000 in a tournament.
• A game’s profit is more than $600 and is thirty times or greater than the bet amount.

Now, filing this form does not mean that the casino has to collect from your winnings automatically. However, since the government will soon be aware of your win, it would be foolish to omit it from your return. So, make sure to keep your copy of the form for your records.

The bottom line is that if you have a memorable win in a casino, it’s quite likely that the government wants to remember it, too.

How do I report my winnings?

It’s understandable that you might feel disappointed about having to pay taxes on your winnings. Nevertheless, in most cases, you’ll bite the bullet and decide to file. So, here’s how to do that.

As is the case for essentially anything to do with the IRS, there are forms to fill out. The first thing to do is report the income on the IRS Schedule 1, which is the form for additional income and adjustments to income.

On that form, look for Line 8 in Part I, which is entitled “other income.” Here is where you will list your winnings and their source. “Gambling” or “casino” are fine for explaining from where the money came in most cases, although you can be more specific regarding the casino and date if you’re worried about attracting attention.

Once you’ve entered the information onto your Schedule 1, you’ll need to put the same total onto line 7a of your regular tax return. You will then be able to add the winnings into your overall taxable income.

By the way, your Schedule 1 is also the place to list various types of deductions, like certain business expenses or student loan interest payments. So, make sure that you don’t miss out on all the different ways to knock down that taxable base.

Can I report gambling losses in any way?

Of course, gambling comes with the inherent chance of losing. However, you could understandably think that it seems unfair that the IRS only cares about your winnings. You may wonder if there’s a way to claim gambling losses on your taxes.

As it turns out, you can.

The IRS provides Schedule A as a form to claim various deductions. Although there’s no line expressly for gambling losses, you can list your setbacks in Box 16 – Other Itemized Deductions to claim them.

Now, there are two rules that go along with claiming casino losses on your tax form. The first, and most important, is that you cannot claim losses in excess of your claimed winnings.

So, if you list $1,000 in gambling winnings on your Schedule 1, the maximum that you could claim as losses on your Schedule A would be $1,000. If you had a bad year at the casino (as many of us do), the IRS does simply allow you to write off the loss as a deduction against your taxable base, unfortunately.

The other rule is that you must be able to prove your losses in some kind of meaningful way in order to claim them. It is vital that you keep records, receipts, and other documentation to show the losses, or the IRS might not accept the deduction as valid.

After all, that might be a handy way to offset your winnings from the year and avoid taxation, so the IRS has to be sure that you took the beating you claim to have suffered. The chance that the agency will take a harder look at you will increase as the dollar amount goes up, so if you’re a bit of a high roller, it’s a good idea to keep a paper trail for yourself.

If you’re thinking that record-keeping might be a pain, you can possibly make things easier by using your loyalty or membership card at your casino of choice when you play. Since they award you based on your play, they keep records of your play. It shouldn’t be too difficult to acquire a copy of your history from the casino.

For your Michigan tax return, it is not possible to claim any kind of losses as a deductible expense. However, the state does allow you not to report the first $300 you win on bingo, poker, or other games from your total household expenses.

Do I have to pay taxes if I don’t live in Michigan?

It’s pretty clear that you have to pay taxes to Michigan if you’re a Michigan resident. However, you may be wondering if you’re still on the hook for the taxes if you’re just visiting from out of state.

Unfortunately, you are still bound to pay taxes to Michigan for your gambling win as a nonresident. As is often the case, there’s even a form for that. Worse yet, you will also have to report your winnings on your return for your own state, assuming that your state requires an income tax.

However, there are a couple of bits of good news. First of all, the states nearest Michigan (Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin) have reciprocal agreements with the Great Lake State regarding earnings that you incur in Michigan. If you live in one of those six states, you are not required to file a nonresident return in Michigan.

The other ray of sunshine is that there is, in fact, a tax credit that you will be able to claim on your home state’s return that will offset the taxes you paid in Michigan on your winnings. So, even though you had to fork over to a state in which you don’t live, you don’t have to pay double tax on the windfall. Although states are happy to collect tax revenue, they correctly realize that having to pay tax twice on the same win might lead citizens to decide it’s not worth the effort to play.

Do I have to pay taxes if I’m part of a group?

In many things, there is strength in numbers, and gambling is no exception. It’s not uncommon for a group of friends to pool their money so that they can roll a bit higher than they would individually. Whether they’re throwing in for a slot machine or on a lottery ticket, groups of people can often find themselves with a claim to a significant amount of winnings.

Unfortunately, taxes remain one of life’s surest things, and group wins are subject to taxation just as much as individual wins. As expected, there is a form for that.

If your group of friends scores big, you will need to fill out IRS Form 5754 to report the winnings for tax purposes. One of the group will have to designate himself or herself as the primary winner, and the other members of the group will have to note the share of the prize that they are claiming. So, if you hit it big with your buddies, you might need a calculator.

Filing Taxes With Gambling Winnings

Once you’ve got the form filled out, send it to the IRS. If the win occurs at a casino, casino management might want a copy of the form for its own records, too.