Gambling can be enjoyable for many people when handled responsibly and by following the law. If you win big at gambling, you'll probably be curious about how to report your winnings to the Internal Revenue Service (IRS).
Some people may even question whether winnings from gambling need to be reported to the IRS and how to do so.
⚠️ Disclaimer - We are not financial advisors and are not financially literate ourselves. The content offered in this article is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. All content on this site is information of a general nature and does not address the circumstances of any particular individual or entity.
Do Casinos Report Players' Winnings to the IRS?
The games determine if you're playing and whether you're playing at US-licensed online or offshore casinos. Offshore casinos licensed outside the United States are not required to report and disclose winnings to the IRS.
Any video poker or slot machine victory exceeding $1,200 at a state-licensed online casino (i.e., in states like Indiana, Pennsylvania, New Jersey, or Nevada where online gambling is legal) will be reported, and you should obtain a Form W2-G for reporting purposes.
Casinos don't report table gaming wins except if you win at least $600 or more and 300 times your bet. Take note that you are still legally accountable for reporting your earnings to the IRS regardless of whether they get reported.
Are Your Winnings from Offshore Online Casinos Taxable?
Even if you gamble online at an offshore gambling website, remember that you are legally responsible for paying your taxes, even if it's overseas. Under the US Tax Code, all income for US citizens is taxable, whether earned in the US, on the Internet, or overseas.
Unless otherwise provided, Sec. 61(a) defines gross income as "all income from whatever source derived," including gambling. (McClanahan v. the United States, 292 F2d 630, 631-632 (5th Cor. 1961).)
But there are exceptions to this rule where winnings from slot machines, bingo, and keno may not be subject to withholding of tax given that certain conditions are met. It means that the payer of 9Ta social security number.
According to the IRS, you will be given a copy of IRS Form WG2 to record the transaction if you win significant money in any licensed and regulated game of chance. The payer of your winnings will withhold 24% of the overall tax amount.
Based on Form W-2G, "a significant amount of money" in gambling depends on the game. For bingo games or slot machines, it's $1,200, but $1,500 for keno. For lotteries, wagering pools, and sweepstakes, it's $5,000.
In any case, an estimated 24% of the winnings' total amount will be withheld from your payout, which will then be directly sent to the IRS, with an added documentation of Form W-G2.
You might either owe more or get some of it back. (Internal Revenue Service. "Instructions for Forms W-2G and 5754 (2021)." (Correct as of June 30, 2022.)
How Can You Report Your Online Casino Winnings?
Gambling winnings are almost always considered taxable income. It is declared as other income on your tax return, where cash and the fair market value of any prizes you win are included.
Gambling winners are mandated by law to declare the entire winnings on their tax returns. Depending on how much you won, you may need Form W-2G to determine if any taxes were withheld.
Meanwhile, if you are one of the nonresident aliens, such amounts will be declared on your Form 1040-NR, Nonresident Alien Income Tax Return. Your Tax Return will be filed with the required gambling forms.
Remember that you're still responsible for reporting all gambling winnings on your return even if you don't receive a Form W-2G. Gambling winnings include, but are not limited to, prizes or money gained from:
- Betting pools
- Casino games
- Horse or dog races
- Off-track betting
- Poker tournaments
- Slot machines
How Can You Use Gambling Losses to Your Advantage?
In the United States, you can offset some of your losses through tax deductions for gambling losses. Still, you'll have to keep clear and detailed records of your gambling activities and prepare the necessary paperwork, including receipts, to support your documents.
According to the existing legislation regulating winning tax, you can deduct your losses up to the number of your total earnings.
For instance, if you had a total winning amount of $10,000 within a tax year and had $15,000 overall losses, you can claim a full deduction of $10,000. Taxes will still be due on the remaining $5,000.
While this does not appear to be the fairest course of action, the IRS made this decision because they want to stop people from abusing these deductions to offset taxes on other forms of income.
Are cryptocurrency winnings from Bitcoin casinos taxable?
You must pay a flat tax of 25% on your gambling earnings in the USA. The casino or sportsbook has the right to deduct up to 30% of your winnings as taxes if you don't give them your social security number.
If you want to pay your taxes and are playing at an offshore cryptocurrency sportsbook or casino, you will need to set aside the money and spend it when it's time for tax payment.
There's a good chance that the taxman won't find out about your gains or ask about them, but if you don't pay your taxes, the penalty could be as bad as jail time.
Like most countries that mandate gambling winnings to be taxed, the United States also permits you to consider your gambling losses as a tax deduction, which is maxed out at your winning amount.
How Do Professional Gamblers File Their Winnings and Losses?
To qualify as a professional gambler, you must prove that you do not earn a substantial income from other non-gambling activities.
This is because the IRS can identify that you don't only depend on your cost of living expenses for your gambling profits. In this case, it can be determined as a hobby rather than a profession.
Secondly, professional gamblers need to show that they don't get recreation or personal pleasure from gambling.
Since casino gambling is usually considered a form of amusement, a taxpayer should prove that there's no pleasure involved in the activity (i.e., including family or friends in gambling activities).
For federal tax purposes, professional gamblers should report their gambling losses and winnings on Schedule C, Profit or Loss From Business.
To compute their business income, they may net all their gambling activities to compute their business income but can't report an overall gambling loss. Furthermore, the taxpayer may withhold the business expenses "ordinary and necessary" made in connection with the business.
Whether a gambler is a professional or an amateur, tax purposes are based on "circumstances and facts."
The Supreme Court established the professional gambler standard in Groetzinger, 480 U.S. 23 (1987), which states: "If one's gambling activity is pursued full time, in good faith, and with regularity for the production of income for a livelihood, and is not a mere hobby, it is a trade or business." It is the gambler's responsibility to prove and obtain this status.
There are winners and losers in gambling. But if they don't pay their taxes, winners will lose too! The IRS will consider any money you earn from wagering or gambling as taxable income and the fair market value of any items you win. Therefore, it is impossible to escape paying taxes on gaming profits. So, make sure to pay your taxes accordingly.
This article was published on July 21, 2022, and last updated on July 16, 2022.