“Winner, Winner, Chicken Dinner!” – Unknown
First, we would like to congratulate you on your winnings. While the joy from retaining gambling winnings is often exhilarating, it’s essential now more than ever to be sensible. By this we mean it is better not to spend what you just earned too fast as this is a common mistake which lands players back where they started, at zero.
On this page, we will explain how US gambling laws affect winnings for players 18 and up, if you qualify as a professional 18+ gambler in your state, what to do with your winnings, how to file taxes on winnings, and some extra information on any filling needed for gambling losses.
How States Deal with Skill-Based Games & Games of Chance Winnings
Not all US states deal with gambling winnings the same. Some states have income taxes which require reporting on gambling earnings. Forty-one US states tax gambling winnings through other means such as general imposed taxes like Nevada’s gambling tax and Washington’s high overall state and local tax.
Some states write different rules for taxation based on whether the gambling winnings were gained through a game of skill like Roulette, Blackjack, sports gambling, pari-mutuel wagering, or legal online 18+ casinos with Live Dealer Games; or games of chance like Slots or the lottery.
For example, lottery taxes in some states like Connecticut do not need to be reported to the state if the resident is filing as single and has a total gross income for the year less than $13,000. Since every US state has its own rules on how to tax and deal with gambling earnings, it is better to confirm this with your state’s gambling laws before spending any of your winnings.
Some US States with High Overall Taxes Which Can Negatively Affect Gambling Winnings:
However, this list can be misleading as the profitability of gambling isn’t necessarily lower in these states. Other factors like the cost of living and specific taxes can affect net winnings.
Some US States with Lower Overall Taxes:
US States with No Income Tax:
- South Dakota
- Washington (no income tax but high combination of overall state & local tax)
How The US Federal Government Deals With Gambling Winnings
Typically, the federal government will require 18+ players to file a W-2G Form and report their winnings to the IRS this way. 25% of these winnings are withheld at a flat rate for federal taxes. If eighteen and older players do not supply a tax ID number, withholding is increased to 28%. Withholdings are required by the federal government if winnings, minus the bet, are more than $5,000.
Am I a Professional Gambler?
Some states have specific gaming legislation which creates income thresholds for gamblers. This threshold when exceeded, label 18 and over players as professional gamblers. Therefore, it is best to understand your state’s gambling laws concerning professional gamblers and qualifiers as these may affect your state taxes.
Casual gamblers do not experience a federal self-employment tax; however, professional players do. Self-employment taxes are subjected onto net winnings for professionals, which is the amount of winnings remaining after losses and other applicable expenses like travel, gas, lodging, food, drinks, and even health insurance, and self-employed 401(k).
Winnings – What’s The Next Financial Step?
After you’ve deducted your expenses and set aside a portion of your winnings to pay state and federal taxes, it is time to think about what you can do with your available net winnings. Now depending on the stage of your life, players 18 and older may want to save some of their funds for a rainy day, school tuition, textbooks, a down payment for a new car, save up to rent a new apartment, or go on a fun trip, an amusement park, 18+ casino road trip, or festival.
This “next step” depends entirely on you. However, we recommend not spending it all too fast or in one place, but the money is yours to spend how you want regardless.
Need To File a Loss?
Federal taxes will often ask eighteen and up gamblers to deduct their gambling losses for IRS purposes via a Schedule A Form. Sometimes, this can mean paying a penalty for a high AGI. Some US states do not allow players to deduct their gambling losses such as Connecticut, Hawaii, Illinois, Indiana, Massachusetts, Michigan, Ohio, West Virginia, and Wisconsin.
As a general rule, casual gamblers (i.e., not Professional gamblers) may deduct their losses under 165(d) of the Internal Revenue Code. Regardless, all 18 and up players professional or casual must keep records to document their gains and losses such as the location, date, witnesses, amount wagered, amount won, amount lost, and game type played. For filing purposes, it may be easier to file a W-2G or Form 5754. Keeping wagering tickets, bank statements, invoices of checks, casino credit reports, statements of payment slips from the gambling venue, any comps, and letters of actual net losses by the gambling establishment can help verify the validity of these activities and actual figures to the IRS.
How To Keep Track Of Winnings and Losses (For Filing) Per Form of Gambling:
- Lottery – Record of ticket purchase, payment slip, and unredeemed ticket
- Bingo – Number of games and ticket costs
- Slots – Time, date, location, the machine played, machine number
- Horse or Dog Pari-mutuel Race Betting – Races played, actual wagers, the racing program, losing ticket (Do not drop ticket or let it get stepped on)
- Jai Alai Pari-mutuel Wagering: Games wagered, actual wagers, program, losing ticket