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Gambling Laws: Taxes on Winnings

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Gambling as an activity (and an industry) is still something a lot of people in the United States frown upon. As a result, there are still many restrictions in place when it comes to placing bets on casino games as well as other wagers, like horse racing. For example, only eight US states allow sports betting, while 23 of them have made commercial casinos legal within their boundaries.

Despite this, this is still a huge money-making industry. Across 40 states, 1,7 million people have a job related to gambling in one way or another. Gambling contributes $137.5 billion annually to the US economy. Of course, the IRS (Internal Revenue Service) wanted a piece of the cake as well.

Professional Gamblers

For professional gamblers, the IRS views their winnings as regularly earned income and taxes them accordingly. They use effective income rates — in 2019, they go from 10% for earnings of up to $9525, to 37% for those above $500,000. As opposed to salaries, there’s no such thing as gender tax pay, so for example, famous female poker players have to pay as much as their male colleagues.

Taxing Winnings

When it comes to gambling taxes for casual players, all winnings are taxable, and that affects any kind of wagering. All casino games (slot machines, keno, bingo, you name it), accompanied by poker tournaments, lotteries, and betting pools are subject to tax. Even if you win a non-monetary prize, such as a car or a trip, you need to report it on its fair market value.

Overall, the tax on gambling income stands at 25%, and it’s not progressive. So it doesn’t matter if you win $2000 or $2 million, the percentage doesn’t increase. Generally, casinos are required to withhold the 25% themselves, so they issue their players the IRS’s form W-2G. Some table games, such as craps, blackjack, and roulette, are exempt from this practice. The reason is, it’s hard for casinos to keep track of how much money you’ve actually joined the table with, and consequently, they can’t really determine the amount of taxable income. However, this does not translate to not paying up, as you have to report the winnings on your own.

The threshold for being subjected to tax laws differs from one type of wager to the other. For example, in poker tournaments, you need to report winnings above $5000, while slots and bingo require you to do that after $1200. Horse track betting, on the other hand, becomes taxable after you make a profit of 300 times the initial wager, or $600, whichever comes first.

Some states tax individually, meaning that you might need to pay federal taxes in the state you’ve made your winnings in. However, your state of residence will still make you report your winnings, but they’ll offer you credit or tax deduction.

Gambling Losses

If you itemize your deductions, you can use gambling losses for a tax deduction. You report them separately, instead of just giving a net amount. In essence, you cannot deduct losses higher than your gambling income on your tax return.

At the moment, no nonresident players, except for Canadians, are able to deduct losses from their taxes. What’s more, the nonresidential tax rate stands at 30%.

Death and Taxes

As the gambling industry is a multi-billion-dollar one, it’s only logical that the IRS decided to be part of it. All gambling winnings are subject to a flat rate of 25%, with most of the taxes withheld directly by the casino. However, if that doesn’t occur, you need to report your winnings when filing your taxes if you want to avoid legal trouble. And when it comes to the IRS, trust us, you do.