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Will your Vegas vacation result in a tax bill? It could, if you have some good luck. Read on for gambling tax tips.
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Technically speaking, all gambling winnings are taxable. However, not all gambling winnings are legally required to be reported to the IRS. For example, you could walk into a casino, put $20 into a slot machine, win $100, and walk out. The IRS would have no idea and you’d have an $80 tax-free profit.
On the other hand, there are some formal thresholds above which there will be a paper trail. The requirements vary depending on the type of gambling, but if you have a single win that exceeds a certain amount of money, the gaming establishment will collect certain information from you (such as your Social Security number and a copy of your ID) and will issue you a Form W-2G to document the win. And keep in mind, if you receive a tax document in the mail, that usually means the IRS received a copy as well and knows about it.
A quick guide to the various tax documentation requirements
Horse racing or general gaming: If you win $600 or more on a single event, or over 300 times the wager amount, whichever is greater, it is subject to IRS reporting. For example, if you wager $20 on an event and win $800, this would be 40 times the wager amount, which would not trigger a tax form.
Slot machines or bingo: Wins of $1,200 or more are considered “hand pay” jackpots (meaning they are physically paid by an attendant, not by the machine itself), and tax information will be collected. However, this only applies to individual wins. For example, if you win $1,000 on one pull of a slot machine and $400 on the next pull, you can simply cash out the $1,400 even though it exceeds the threshold.
Keno: Wins of $1,500 or more at Keno will trigger the W-2G requirement.
Poker: If you win $5,000 or more at a poker tournament, a W-2G is required.
Table games: In most cases, casinos generally don’t have to issue W-2G forms for table games, regardless of the amount won. Technically, the same “$600 and 300 times the wager” threshold that applies to horse racing applies here, but it’s rare for a single table game win to exceed 300 times a wagered amount. If you win a side bet or progressive jackpot, it could apply.
If the casino takes your information for a win, you can expect to receive a W-2G for the year in which the win took place, and it should arrive around the same time as the rest of your mailed tax documents (usually mid-to-late January).
It’s also worth noting that these rules apply to non-cash prizes as well. For example, if you play a slot machine and win a car, the same tax reporting threshold applies as if the prize was paid in cash.
Tax withholding requirements
You can choose to have taxes withheld if you win less than $5,000 and a W2-G is issued. The gambling establishment is required to withhold taxes if you win $5,000 or more and it triggers a W2-G. The standard withholding amount is 24% from gambling winnings.
Will you actually have to pay tax on your winnings?
The short answer is “it depends.” One important concept to know is that if you itemize deductions on your tax return, you can deduct gambling losses to help offset your winnings. So, if you won $3,000 from a slot machine and lost $1,000 of your winnings at a blackjack table, you’ll only have to report $2,000 in net winnings. Just make sure you can document the losses if you do this — one smart way to do this is to use each casino’s player’s card while you gamble. Not only does this let you accumulate points and earn freebies (comps), but it also keeps track of your play, which can come in handy at tax time.
The bottom line
Gambling winnings are considered taxable income at the federal level, but casinos and other gambling establishments are only required to report winnings that exceed certain thresholds. If you win at a casino and fill out a W2-G form, you’ll have to report your winnings, but you can use any gambling losses to reduce or even eliminate any additional tax burden.
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