It is understandable to hope for a tax-free windfall after a successful night at an land-based or online casino. However, you may be required to pay taxes on your winnings. This is something that most individuals fail to consider or remember.
Wins from casinos are subject to income tax under IRS guidelines. However, if your earnings are over a certain threshold, casinos must provide you with a W-2G. This documents your profits and taxes paid to the IRS.
Here’s everything you need to know about taxes on casino wins and how to reduce your liability, so you’re ready for the taxman when he comes knocking.
How Much Can You Withdraw Without Paying Taxes?
The following are the lowest amounts that may be withdrawn from a casino without being subject to taxation:
- Jackpots on slot machines and video poker games that fall below $1,200
- Wins on table games with odds lower than 300 to 1 and jackpots of less than $600
- Less than $5,000 in Poker Tournament Winnings
- Winnings from sports betting and horse racing totaling less than $600 and where chances of winning are less than 300 to 1
What the Law Requires From You
Definitely not. Even if your wins do not exceed the amount that constitutes taxable income, there are other things you should consider.
Firstly, know that you are required by law to report any winnings below these minimums. This is true even if the amount is less than what would trigger the issuance of a W-2G. It’s in your best interest to maintain tabs on your gambling wins and losses in case you need to deduct some of your losses from your wins to reduce your tax liability.
The casino staff may require you to show identification and a W-9 form if you win a substantial amount. A Form W-9 is a tax document issued by the IRS that verifies the recipient’s identity and tax identification number (TIN). The casino can tell the IRS exactly which taxpayer the document pertains to.
Casinos will still ask for identification and a tax ID number if the payoff is less than $5,000 since they must submit a Form 1099-MISC with the IRS anyway.
Are State Taxes Different?
The federal government’s responsibility for collecting tax revenue from gambling falls to the IRS. However, many states also impose taxes on winnings from casinos inside their borders. While federal law is consistent, each state has its system for taxing gambling gains. Not all states tax winnings from casinos. Those that do often use their own set of unique regulations and procedures.
Taxes on gambling wins may be levied by certain states at a uniform rate or percentage, regardless of the number of earnings. However, in certain states, taxes are calculated based on the total value of the prize. There may be exemptions or deductions available for gambling profits in certain jurisdictions, such as a minimum sum at which no tax is levied or the ability to deduct losses.
The tax regulations that apply to gambling winnings are subject to change. Therefore the information presented here may not be current, depending on when you read this.
Contact the appropriate state tax authorities to learn the regulations and tax rates that apply in your state.
Whatever winnings you amass from gambling, keep in mind that the government will want its cut. This will especially be true if you’re playing at higher levels and would like to make it a source of income.
To determine your tax liability and make appropriate preparations, you should speak with a tax expert or investigate the tax regulations that apply to your circumstances. Also, regardless of how little your gains may seem, you are highly advised to disclose them to the IRS.