Tax On Casino Winnings – How Much Do You Have To Win To Pay Tax?

Form W-2G for gambling winnings

You have finally gotten those sevens to line
up in the window of your favorite slot machine, or maybe you laid down that
Royal Flush on Mississippi Stud you’ve been waiting years on.

The taxman is probably the farthest thing from
your mind.

But the sad reality is, you’re going to have
to pay taxes on a slot jackpot of $1,200 and up, and most table games jackpots
that are more than 300 to 1.

Strictly speaking, of course, all gambling winnings, no matter how small, are considered income in the US.

And the IRS expects you to report them – whether it is $1 or $10,000 – on your 1040 tax form as “other income”.

But in certain situations like a slot or table games jackpot, the casino will generate a Form W-2G, which outlines to the IRS what you’ve won and whether or not taxes were paid.

Federal Withholding is 24 percent on a W-2G for US citizens and 30 percent for non-citizens.

We certainly aren’t tax experts, but we can
walk you through the process of when casinos issue a W-2G and what you can expect.

But first off, “Congratulations on your big win!”

…which is precisely what you are likely to hear right before casino staff starts asking for ID and your Social Security Number (SSN). And in some cases, whether or not you’d like Federal Withholding tax withheld.

When To Expect A Form W-2G

Form W-2G for gambling winnings

So in typical IRS fashion, each type of
gambling winning has a different reporting requirement.

Ever wonder why some casinos have slot or
video poker jackpots set at $1,199?

Well, here’s your answer.

Slots, Video Poker And Keno

All slot and video poker jackpots of $1,200 or more will trigger a W-2G.

This seems to also apply to electronic keno, though the IRS website lists the reporting requirement for live keno at $1,500.

Table Games

All table games are considered games of skill under federal tax law. Skilled games are issued a W-2G if the payout is 300 to 1 or more AND at least $600.

Some table games like craps, roulette, or blackjack are never issued a W-2G, even if the winnings are in the millions.

However, not receiving a W-2G does not mean you won’t be liable for taxes on your winnings.

And all large cashouts at the cage will require an ID and an SSN or other documents, in any case, leaving a paper trail.

Poker

While cash games do not generate W-2Gs whether
you are a professional or amateur player, tournament wins over $5,000 will have
the casino or card room filling out paperwork.

Your tourney buy-in is subtracted from that
amount.

Many professional players treat poker as a business, even going as far as opening an LLC.

This allows them to write off losses against wins and deduct expenses like hotel rooms.

Sports Betting and Horse Racing

Wins on sports betting or horse racing also have W-2Gs completed on wins of 300 to 1 or more and at least $600.

More than 25 states have legalized sports betting since 2018, bringing in tens of millions in new tax revenue.

And more states are passing legislation to allow sports betting every year, many with rules that allow for mobile sports betting.

The ability to bet on games from your phone, along with the addition of in-game betting, is likely to mean there will be a flood of new W-2Gs.

In-game betting allows you to bet on various
outcomes during each game, like whether the next play will be a pass or a run
or whether the next batter will strikeout.

These bets can then be strung together in
parlays and teasers that often pay more than the 300 to 1 threshold.

I’m A Big Winner, Now What?

Casino staff will request identification and they’ll need a Form W-9 if they don’t already have one on file for you.

A Form W-9 is an IRS tax form used to verify
the name, address and taxpayer identification number (TIN) of an individual receiving
income. It allows the casino to identify to the IRS which tax filer this
paperwork is for.

In cases where the payout is less than $5,000,
they will ask whether you want federal taxes withheld.

If you decline to provide two forms of ID, you
will not be paid. However, the winnings will be held at the cage for some time
to give you time to reconsider or be able to provide the requested documents.

If you decline a W-9, backup withholding will
be withheld at a 28 percent tax rate. While Federal Withholding is 24 percent
on cash, it rises to 33 percent on prizes like cars or boats.

In some instances, individual states will also
withhold taxes. Though, Nevada is not one of them.

At tax time, you will want to tally all of
your W-2Gs from the year, along with other gambling winnings, and declare them.

As mentioned, we are not tax professionals,
but one mistake we see made over and over is people not withholding federal
taxes on those small wins under $5K.

Most mistakenly believe that they can use
losses against those winnings and not owe federal taxes, but this is only true
if you are itemizing your taxes instead of taking the standard deduction. 

Tax law changes in 2018 almost doubled the
standard deduction. The list of things you could deduct if you itemized was
cut, so most Americans will no longer be itemizing.

This means the IRS will have a W-2G where
withholding wasn’t paid, and you will have no qualifying losses.

It’s probably best to have withholding taken
out of all jackpots unless you have spoken with a professional tax planner, or
you are confident you will be itemizing deductions and keeping good records of
all gambling wins and losses.

Conclusion

There are only a few certainties in life, and
taxes are certainly one of them. We hope you enjoyed your big win, but the IRS
is going to want you to share.

Remember, the IRS expects all gambling winnings reported, not just jackpots.

If you do receive a W-2G, remember to include
it on year-end taxes even if you had taxes taken out, so that the IRS can see
that everything matches up.

If you have several W-2Gs or a huge win,
consider doing your taxes with the standard deduction and itemized deductions
to see which turns out better.

Or better yet, consult a tax professional.

Author: Glen Ferguson