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Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.

Withholding on Gambling Winnings Gambling winnings are subject to withholding for federal income tax at a rate of 24% as of 2020 if you win more than $5,000 from sweepstakes, wagering pools, lotteries, or other wagering transactions, or anytime the winnings are at least 300 times the amount wagered. $1,200 or more in gambling winnings from bingo or slot machines; $1,500 or more in proceeds (the amount of winnings less the amount of the wager) from keno; Any gambling winnings subject to federal income tax withholding. Gambling winnings are fully taxable and must be reported on your tax return. If your winnings are reported on a Form W-2G, federal taxes are withheld at a flat rate of 24%. If you didn’t give the payer your tax ID number, the withholding rate is also 24%. Withholding is required when the winnings, minus the bet, are: More than $5,000 from sweepstakes, wagering pools, lotteries.

Casino Winnings Are Not Tax-Free

Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.

By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.

How Much You Win Matters

While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:

• $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
  
• $1,500 (reduced by the wager) in keno winnings.
  
• $1,200 (not reduced by the wager) from slot machines or bingo
  
• $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.
  

Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.

Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.

What is the Federal Gambling Tax Rate?

Standard federal tax withholding applies to winnings of $5,000 or more from:

• Wagering pools (this does not include poker tournaments).
  
• Lotteries.
  
• Sweepstakes.
  
• Other gambling transactions where the winnings are at least 300 times the amount wagered.
  

If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.

The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.

It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.

Can You Deduct Gambling Losses?

If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.

The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.

What About State Withholding Tax on Gambling Winnings?

There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.

Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.

State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.

How to Report Taxes on Casino Winnings

You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.

You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.

Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.

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Part of the fun of gambling is the suspense.

It wouldn’t be as exciting if you knew the outcome of your wagers ahead of time.

Another plus is that many types of gambling are legal in New Jersey. Casino gambling, horse racing, the state lottery, bingo and most recently, sports betting.

Gambling is even more fun when you win.

And, when you gamble at authorized NJ betting sites, you will be paid.

What you may not have given much thought to, though, is that NJ gambling winnings are taxable. Winnings obtained from illegal gambling applies here as well.

In this article, we will tell you everything you need to know about the federal and New Jersey state laws concerning gambling winnings and taxes.

Are NJ gambling winnings taxable?

According to the IRS, gambling winnings in any state, including New Jersey, “are fully taxable and you must report the income on your tax return. Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.”

The IRS doesn’t mention sports betting, but winnings therefrom also count as gambling winnings and are, thus, taxable.

How much are NJ gambling winnings taxed?

Whether you’re a New Jersey resident doesn’t have any bearing on your liability to pay federal and state taxes on your winnings.

So, this includes the total of your winnings, if any, that is withheld for state taxes.

However, the type of gambling and, whether the winnings are from a retail or online site, does matter.

Taxes on NJ state lottery winnings

Prior to 2009, NJ state lottery winnings were not taxable.

However, effective January 2009, New Jersey Lottery winnings in excess of $10,000 became subject to the state gross income tax.

The percentages withheld from the state lottery payouts of more than $10,000 are as follows.

If the payee provides a valid Taxpayer Identification Number (TIN):

• 5% of payouts of $10,001 to $500,000.
• 8% of payouts more than $500,000.

If the payee does not provide a valid TIN:

• All payouts of more than $10,000 are taxed at 8%.

Rules on shared and multiple lottery wins

If two or more people win a given lottery prize and split the proceeds, as long as the total prize exceeds $10,000, it is taxed.

Each recipient must, therefore, assume liability for his or her share of the taxes even if the individual’s share does not exceed $10,000.

Furthermore, if a person wins the NJ Lottery more than once in the same year, each win is considered separately in determining whether or not it is taxed.

For example, a person who wins the lottery twice in one year, once for $6,000 and once for $5,000, would not have to pay any state tax on those winnings.

However, a person with a single state lottery win of $11,000 would have 5% of that amount withheld for state taxes.

Federal and state taxes on other NJ gambling winnings

The state lottery is one form of gambling in New Jersey for which winnings are taxable.

In fact, gambling operators must report individual wins over a certain amount for some types of gambling to the IRS.

Federal tax form W2-G

All New Jersey-licensed gambling establishments, including casinos and racetracks, are required by federal law to report certain gambling winnings to the IRS on Form W2-G.

However, the minimum win for this to happen varies, depending on the type of gambling, as indicated below:

• Horse Racing: Winnings exceeding $600 on a $2 wager or 300x any larger amount wagered.
• Slot Machines and Bingo: Winnings (not reduced by the amount wagered) that exceed $1,200.
• Keno: Winnings (reduced by the amount wagered) that exceed $1,500.
• Poker Tournaments: Winnings (reduced by the amount of the buy-in) that are more than $5,000.

Amount withheld from winnings for federal and state taxes

In every such instance, the gambling establishment must file Form W2-G to report the win to the IRS and send a copy of the form to the payee.

Since winners need this info to prepare their tax returns, they will usually receive a copy of Form W2-G in January of the following year.

Typically, the gambling facility, where the win occurred, will withhold a certain amount of the gambler’s winnings for federal and state taxes.

Before 2018, the standard withholding amount for federal taxes was 25% for those who provided a valid TIN and 28% for those who didn’t.

However, starting in 2018, the withholding rate for federal taxes is now a uniform 24%.

The amount withheld for state taxes varies from state to state.

In New Jersey, it is only 3%. That is the tax rate regardless of whether you live in New Jersey or not as long as the reportable winning took place in New Jersey.

The winner’s responsibility

The gambling facility must file Form W2-G and withhold the appropriate tax from your winnings if it meets the specified criteria.

But whether it does so or not, you still need to report your net gambling winnings as income when you file your tax return.

Obviously, gamblers who win big will find it disappointing, in most instances, to have to fork over a sizable chunk to the government.

But here’s some other news that may help you.

Ultimately, the amount of tax you owe on your gambling winnings will depend on your taxable income bracket. And, if you itemize your deductions, the extent to which you could offset those winnings with documentable gambling losses.

How gambling losses can help offset winnings

You can deduct your gambling losses, but only to the extent of your winnings.

If you lost more money gambling than you won that year, you could only deduct losses up to the amount reported as winnings. You cannot report any amount above that.

In other words, you can’t report your gambling income as a negative amount.

However, you can combine your losses from different types of gambling.

For example, if you won a big jackpot on a slots machine, but lost money on other casino games, poker and sports betting, then those losses count.

On the flip side, due to the recent substantial increase in the allotted amount you can take on your tax return as a standard deduction, itemizing your deductions may not be more beneficial tax-wise after all.

Seeking the advice and services of a professional accountant could be a worthwhile investment.

Which tax forms should you use to report gambling wins and losses?

If you are a casual gambler and received Form W-2G, be sure to include the winnings on that form. Also, include any tax withheld and any other gambling winnings you are reporting for the year on Form 1040 as “Other Income.”

Then, if you itemize your deductions, enter any offsetting gambling losses on line 28 of Schedule A (Other Miscellaneous Deductions.)

If it turns out that you paid more in taxes than you should have on your gambling winnings, you will receive a refund.

However, if too little money was withheld or you have other gambling winnings to report, you could owe more money in taxes.

In fact, casinos are not required to issue a W2-G and withhold taxes for winnings at table games (blackjack, roulette, baccarat and craps).

However, casinos expect players to keep track of such wins and include them on their tax returns.

The same applies to winnings from sports bets. You may be able to offset those wins, at least in part, with your gambling losses and other related expenses.

What happens if you receive a W-2G but don’t report the income on your tax return?

If you receive Form W-2G, whether money was withheld from your winnings or not, ignoring it is a mistake.

You need to file a tax return and show this income on the appropriate forms. If you don’t, the IRS will likely send you Form CP2000, which is a notice of underreported income.

You will be assessed additional taxes, penalties and interest on your unreported or underreported gambling winnings.

NJ taxes on sports betting winnings

If you win money from sports betting, you must pay taxes on those winnings as you would on other forms of gambling.

Gambling Winnings Taxable In California

Furthermore, if you win more than $5,000 from betting during the calendar year, the NJ casino or racetrack is required to file a W-2G with the IRS.

In fact, for anyone betting anonymously at a retail sportsbook, keeping accurate tabs on wins for a year seems impossible.

Of course, any betting that you do online or through a mobile app is tracked within your registered betting account. As a result, the gambling operator would have an accurate record of every transaction.

Sports betting winnings are subject to the same 24% federal tax rate as other gambling winnings.

The winners are also responsible for paying the applicable local taxes.

The current NJ tax rate is 8.5% for retail sportsbook wins and 13% for wins at online sportsbooks or on mobile apps.

Whether or not the place where the winning occurs reports it to the IRS, keep in mind, these winnings are taxable income. Therefore, it is a gambler’s responsibility to report them and pay any associated taxes.

As with any type of gambling winnings, if you itemize your deductions on your tax return, you can deduct your documentable losses. However, your reported losses cannot exceed your reported winnings.

Taxpaying rules for professional gamblers

If gambling is the way you earn your living, different rules and guidelines apply in determining your tax liability.

So, if you are a professional poker player, blackjack player or sports bettor, proceeds from gambling are considered regular earned income from self-employment and taxed accordingly.

When filing your tax return, you must complete Schedule C, not Schedule A.

Tax On Casino Winnings

Here, you would name gambling as your business and deduct any gambling losses and other gambling-related costs as business expenses.

For example, you can deduct the cost of travel to a gambling facility, including the expenses associated with attending out-of-town gambling seminars and conferences. Also, you can deduct the costs for tournaments and handicapping contests.

You can also deduct the fees you paid for professional services, part of your internet bill and the cost of any materials purchased to help make you a better gambler.

Accurate record-keeping for all gamblers is a must

Federal Tax Rate On Lottery Winnings 2020

Regardless of the type of gambling and whether it is a profession or recreational activity, there are benefits to keeping a betting diary.

Every time you gamble, record the date, place, type of bets made, and amount won or lost. This information will help you identify the types of situations that are the most profitable for you as well as others you should avoid.

Also, if you are over-betting your bankroll and need to cut down, your records will show you that as well.

Furthermore, no one wins 100% of the time.

2019 Federal Tax Rate For Gambling Winnings

If you have reportable gambling winnings, you may be able to reduce your tax liability if you show that you have incurred significant losses.

Federal Tax Withholding Gambling Winnings

Besides a gambling diary, other types of acceptable documentation include:

• Receipts
• Betting tickets
• Win-loss statements from gambling establishments