What is gambling income?
Gambling income is any money that arises from games of chance or bets on events with uncertain outcomes. This income is fully taxable and must be reported on an individual’s federal tax return.
- Gambling income is any money that arises from games of chance or bets on events with uncertain outcomes.
- This income is fully taxable and must be reported to the Internal Revenue Service (IRS).
- Tax paid on profits is not progressive: US resident gambling income is taxed at a uniform rate of 24%, regardless of the amount won.
How gambling income works
Gambling income includes any money earned from gambling, whether it is winnings from casinos, lotteries, raffles, horse and dog races, bingo, keno, betting pools or sweepstakes. The fair market value of non-cash prizes such as cars or vacations is also classified as gambling income.
In some cases, gambling establishments may be required to withhold up to 24% of profits for federal income tax, reporting it on a W-2G form. Which is given to the winner and sent to the Internal Revenue Service (IRS). If the lucky gambler does not receive a W-2G form from the payer, they must still report all gambling proceeds to the IRS.
Casinos also issue a W-2G form when withholding is not required for the following types of winnings: $1,200 or more from slot machines or bingo, $1,500 or more from keno games, $from poker tournaments. 5,000 or more.
The full amount of income earned from gambling must be included on an individual’s federal tax return after deducting the cost of the bet. According to the IRS, taxpayers who are not professional gamblers must report all gambling income that is not included in as “other income” on W-2G Form 1040, the standard IRS document that individual taxpayers use to file their annual income tax return. Shared gambling proceeds, winnings divided by two or more people, must also be reported to the IRS.
Gambling Earnings Vs Gambling Losses
Money lost in gambling can also be reported on a federal tax return. However, there are some limitations: gambling losses in excess of the amount won cannot be claimed as a tax write-off.
In other words, if a gambler spent $10,000 to win $4,000, they would be unable to deduct $10,000 of expenses or an overall loss of $6,000. Tax deductions can only be made on the winning amount, in this case $4,000.
According to the IRS, nonresidents of the United States and Canada are unable to deduct gambling losses.
benefits of gambling
Another potential benefit for gamblers is that earned income is not taxable at progressive rates, unlike regular income taxes. Gambling winners are always taxed at 24%, the first 25%, regardless of whether a person has won $1,500 on horses or $1 million at the poker table.
Non-US residents, meanwhile, are typically taxed at a uniform rate of 30% on their gambling income.
Professional gamblers, individuals who gamble regularly, are treated differently. All of their income is generally considered regular earned income and is therefore taxed at ordinary income tax rates.
Professional gamblers report their gambling income as self-employed income, which is subject to federal income tax, self-employment tax and state income tax.
income tax withholding
Gambling establishments are required to withhold 24% of winnings and report them to the IRS when an individual exceeds certain thresholds – defined as $5,000 or more from transactions involving sweepstakes, bet pools, lotteries, or other wagering as well as when the winnings exceed 300 times. bet amount.
Interestingly, casinos are not required to withhold taxes or issue W-2Gs to players who win large sums of money in some table games, such as blackjack, craps, and roulette.