Online gambling is increasingly becoming a popular pastime due to unprecedented levels of accessibility and convenience that have catapulted online casino games to the forefront of digital entertainment. The success of the casino industry is directly tied to compliance with laws and legislation, making it crucial for both players and operators to understand the standards and expectations related to taxable income.
Betting on chance-based games has been around for centuries, and rules and regulations regarding revenue and taxes constantly evolve alongside the industry. Online gambling technology is advancing rapidly, and governments worldwide are continually adapting to regulate and tax these activities effectively.
Whether it’s online casino games, sports betting, raffles, or lotteries, understanding the taxes on online gambling ensures compliance with the laws and regulations of governing bodies. So, what do you need to know about online gambling taxes in the U.S.? Are you required to report your winnings as taxable income? The short answer is yes, but there are a few other factors to consider if you want to understand the nuances of gambling taxes.
U.S. Online Gambling Tax Explained
In states where online poker and other popular casino games are legal, winnings received from winning wagers are considered taxable income by the International Revenue Service (IRS). Whether the winnings are received as cash, a check, electronic funds transfer, or prize items, you must report the income value. If the amount exceeds a certain threshold, you’ll receive a W-2G form informing the IRS of your winnings.
The minimum amounts to meet the thresholds for each type of gambling activity are:
- $600 or more for horse racing
- $1,200 or more for bingo and slots
- $1,500 or more for keno
- $5,000 or more for poker tournaments
By law, casinos must report your winnings to the IRS if your winnings exceed the amounts listed above. Casinos are also able to withhold your winnings if you don’t meet wagering requirements. That said, it’s up to you to ensure that you comply with IRS reporting requirements, regardless of whether or not you win enough to warrant a W-2G form.
There’s an important distinction to make between games of chance and games of skill. Unlike online slots and other games of chance, all skill-based games like blackjack, roulette, baccarat, and craps are exempt from the W-2G rule. If you win big in these games, casinos won’t withhold taxes or report the income, making it your responsibility to report the income on your tax return (form 1040) as “other income.”
As a general rule, everything you win from any form of gambling is taxable, and the IRS requires you to report all winnings. This makes it essential to keep an accurate and up-to-date record of all your gambling activities. Tracking your losses, gains, and related expenses is crucial for compliance and allows you to maximize potential deductions. For example, if you can prove you spent $1,000 and won $1,000, you wouldn’t need to pay taxes on those winnings.
While you can deduct losses with evidence of your gambling activities, the cost of gambling can’t be subtracted from winnings. Additionally, loss deductions can’t exceed the income claimed. So, if you bet $50 at an online casino with real money and win $750, you can’t subtract the wager. Your taxable winnings are $750, and that’s the amount you report to the IRS.
How Taxes on Online Gambling Are Calculated
Casinos in the U.S. are heavily regulated. The costs of running casinos are high, and licensed operators must meet strict requirements to ensure that money coming in and going out complies with the tax laws and legislation of the relevant state and federal governing bodies. Casinos must report substantial player winnings to ensure they stay on the right side of the law, withholding a specific portion as taxable income.
If you play at a casino online and win any amount above W-2G thresholds, the operator deducts 24% of your winnings as an estimated tax, sending it directly to the IRS. When you file your tax return and report your winnings, your tax bracket determines whether you need to pay more or get a refund.
If you have an individual income of $100,525 and above or a joint income of at least $201,050 as a married couple, you fall in the 24% tax bracket for casino online betting. There are seven tax brackets where winnings are taxed at ordinary income tax rates, ranging from 10%–37%. The laws of the state you reside in also come into play, so you may be subject to state income tax as well.
Taxation rules differ significantly for professional gamblers. Whether you’re playing at live dealer casinos or online from the comfort of home, the winnings you receive from gambling are regarded as regular earned income.
As a self-employed individual, gambling-related expenses like meals and travel expenses can be deducted as costs associated with your procession. While you must pay self-employment tax on your net income, you’re also reducing your taxable income by claiming business costs. Instead of claiming your winnings as “other income,” your winnings are filed as “Schedule C” on your annual tax return.
Enjoy Gambling to Its Fullest at Borgata Online
With a proper understanding of the tax implications of gambling, you’re free to explore the world of online casino entertainment confidently. Register with Borgata Online to access legal casino entertainment in a safe online environment, where you can rest assured that all winnings you receive are recorded accurately, paid out timeously, and immediately disclosed to relevant authorities as required. Borgata Online pays real money if you’re physically located in the legal U.S. casino states of New Jersey or Pennsylvania.