Tax Casino Winnings Usa
Whether you are reading this before or after a big win, understanding what the US tax on lottery winnings is well worth your while. Since there is a huge tax difference between states and even certain cities, spending a few minutes to grasp a few basics now could ultimately save you a fortune later on.
In some cases, the tax (25%) is already deducted by the casino before you are paid your winning. However, if you fail to give your tax ID number to the payer, 28% of the winnings will be withheld instead of the usual 25%. Withholding is effected if your winnings minus your wager are above $5,000 or at least 300 times your wager. Online gambling is unregulated in most regions of the US, but taxes must still be paid. Just because you do not receive tax forms, does not mean that your winnings are not taxed. To the IRS, it does not matter where the money is either. If you have funds in your online casino account, even if it’s an offshore site, it’s taxable. The payer of the prize winnings will withhold and remit U.S. Income taxes to the IRS. For example, if a nonresident wins a large payout at a Vegas casino of $3,000, the casino will withhold $900 in taxes and give the winner $2,100 in cash. Online gambling is unregulated in most regions of the US, but taxes must still be paid. Just because you do not receive tax forms, does not mean that your winnings are not taxed. To the IRS, it does not matter where the money is either. The Tax Cuts and Jobs Act limits this itemized deduction to $10,000 for tax years 2018 through 2025, and to just $5,000 if you're married and file a separate return. $10,000 is just a drop in the bucket if your winnings are really significant.
Lump Sum vs. Annuity Payments
First up, any jackpot winner will only get the full lottery win payout if they opt for the '30 payments over 29 years in annuities' deal. While choosing between the lump sum and annuity payments can certainly be a tough decision, if the winner chooses to take it all in one lump sum, the jackpot amount is immediately cut down. Surprisingly, 98% of lottery winners still choose to take their winnings in one lump sum payout—probably because they are too excited to realize the full weight of deductions and taxes.
If you select the 30 payments (every participating state has different annuity payment schedules), they actually increase over time to stay in line with inflation. A well-structured annuity can be designed in quite a few ways to pay out the winner over the next 30 years; 2% to 3% interest per annum added to the annuity payouts keeps up with the current pace of inflation and can be guaranteed for 30 years to a beneficiary in case of death.
Federal Taxes on Lottery Wins
Next in line is the federal tax bill. Your lottery winnings are taxed just as if they were an ordinary income bonus. This means your income will be pushed into the highest federal tax rate, which is 37%. There is no way you can work around this—the U.S. government does not give tax breaks to even the luckiest people in the country.
With this in mind, the government will immediately and automatically withhold 24% of the lottery jackpot if the winner is a U.S. resident/citizen with a social security number. The remaining 13% must be paid in full come the next tax year. This seems a bit unfair when regions such as the United Kingdom and Canada do not regard a lottery win as extra income—it remains tax free until it becomes part of the winner’s estate.
What Happens if the Lottery Is Won by a Non-Resident?
U.S. residents who don’t have a social security number, for one reason or another, have 28% of the big payout withheld, and foreigners have 30% held back by the government. This is to cover the possibility of the tax balance not being honoured when April comes around.
While anyone who is visiting the country can buy a ticket, taking it out of the country is technically considered illegal. Luckily, there exist “lottery agents,” which are companies that legally buy tickets for their non-American clients. These online lottery sites are actually the easiest way to play other countries’ lotteries, as they offer many benefits and take care of most of the hassles involved in buying lottery tickets, checking them for wins, and even claiming smaller prizes. For big wins, however, you'd still need to visit the US to claim them yourself.
All the Other Taxes That Must Be Paid on Your Lottery Win
Following hard on the heels of federal taxes come state and local income taxes. If you live in New York City, a quadruple whammy of city, county, state and federal taxes will come due by the next April. This can further reduce your lump sum by another 15%.
However, if you live in Wyoming, Washington, Texas, Tennessee, South Dakota, New Hampshire or Florida, then you are not taxed on personal income, and Pennsylvania and California benevolently exempt lottery win jackpots from their state income tax if the ticket was purchased in state.
The following map breaks down lottery taxes by state:
Giving Gifts to Your Loved Ones
Won a big sum and want to gift some or all of it (yeah, right!) to a friend or family member? This is not as straightforward as one might think. A formal agreement has to be made before the numbers have been announced; otherwise, the money given to family or friends is considered a gift and not an income. This means that the tax obligations will fall on the giver and not the recipient.
The IRS actually allows you to gift up to $15,000 tax-free per person every year, but bigger amounts will eat away at your $5.45 million lifetime exemption. If you exceed that amount, then the tax will be a flat 40%. At least gifting to a spouse is unlimited!
Best Way to Think About Lottery Taxes
As far as taxes on lottery winnings around the world go, the U.S. definitely has some of the highest. In addition, the IRS can withhold prize money from winners under certain conditions, such as if they owe back taxes or child support, until their debts are cleared.
However, despite all the tax issues that loom over a lottery win, the excitement of being in the running for a record-breaking Powerball or Mega Millions jackpot still makes it very worthwhile. The monies generated from ticket sales go towards educational improvements and environmental protection, among other worthy causes, which makes the lottery a true case of “win-win”.
If you're feeling lucky (and don't mind sharing some of your winnings with the taxman), here are the best lotteries to play both within the US and far beyond its borders.
When you gamble, you’re probably only focused on winning in the moment. You don’t think about what the government might take off the top of your wins.
Of course, the US federal government always wants a cut. It demands 24% of your winnings through federal taxes.
However, states vary on how they tax gambling income. Some are much worse than others due to their high rates.
Casino Gambling Taxes by State
The following guide covers seven states that want a big chunk of your winnings. It also discusses common questions and topics regarding gambling and taxes.
California:
The California casino scene is a thriving land-based gambling industry. It offers 62 tribal casinos, 88 card rooms, and over a dozen horse tracks.
That said, California is definitely a good vacation spot due to its weather and numerous gaming options. But you might take pause on visiting here when considering the extreme tax rate.
California taxes gambling wins as normal income. It collects anywhere from 1% to 13.3% of your winnings. The 13.3% is the highest state tax rate in the US.
Iowa:
Iowa boasts casinos, poker rooms, and sports betting. It charges a 5% flat tax on winnings earned in the Hawkeye State.
Minnesota:
Minnesota offers a wide range of charity gambling establishments and a lottery. The Gopher State may not provide massive Vegas-style resorts, but it does give you some options.
It taxes gambling according to four income brackets (based on married people’s income):
- 35% ($0 to $39,410 annually)
- 05% ($39,410 to $156,570)
- 85% ($156,760 to $273,470)
- 85% ($273,470 and above)
You’ll likely fall into the 5.35% bracket if you do profit through gambling. But if you win really big, you’ll need to deal with the large 9.85% rate.
New York:
Gambling in New York has grown within the past decade. Its Expanded Gaming Act has added commercial casinos on top of the existing tribal establishments.
You can also enjoy lotteries and poker here too. Assuming you win, though, then you must ante up between 4% and 8.82% for state taxes.
Oregon:
The Beaver State offers lotteries, charity gaming, horse racing, and tribal casinos. It provides more than enough gambling options for its 4.22 million residents.
Tax Casino Winnings Us
Oregon doesn’t worry about taxing wins worth less than $600. However, it does impose an 8% tax on winnings worth over $600.
Vermont:
Vermont features a unique tax structure that varies based on your winnings. You’ll pay a 6.72% rate on wins worth less than $5,000, and 6% on wins worth over $5,000.
Wisconsin:
Wisconsin features 22 tribal casinos and lotteries. The Cheese State requires up to 7.65% in taxes on gambling winnings.
Should You Avoid States With High Gambling Taxes?
You don’t necessarily need to avoid states with high gambling taxes—especially when you’re interested in a certain casino or sportsbook. However, you should keep this matter in the back of your mind.
Tax Casino Winnings Usa Free
Of course, you also want to take other factors into account besides taxes. Here are aspects to think about when determining what state you’ll gamble in:
- Convenience/distance – You don’t want to drive for hours just to avoid gambling taxes.
- Quality of gambling venues – Playing at the best casinos/poker rooms/sportsbooks can make dealing with high stakes worthwhile.
- Availability of regulated online gambling – You may be focused on using legal online casinos and betting sites above all.
- Your preferred stakes – You probably don’t need to worry much about higher taxes if you’re just playing quarter slots or $5 blackjack.
What If You Don’t Live in the State Where You Win?
Gambling over state lines causes confusion on where to pay taxes. Do you pay your home state or the one where you win?
Typically, you cover taxes in the state where the winnings occur. Your home state, meanwhile, will give you a tax credit for whatever is paid to the other state.
Here’s an example:
- You live in Oregon near the California border.
- You cross the border and buy a lottery ticket at a CA gas station.
- You win a $1 million prize.
- As per California’s tax laws, the $1 million payout is subject to the highest 13.3% rate.
- You pay $133,000 to the Golden State.
- Oregon only features an 8% tax rate on large gambling wins.
- Therefore, you owe nothing to the Beaver State.
Don’t Forget Federal Taxes
Some states don’t require you to pay any taxes on gambling winnings. These states include:
- Alaska
- Delaware
- Florida
- Nevada
- New Hampshire
- South Dakota
- Texas
- Washington
- Wyoming
You must pay federal taxes on wins no matter what—even if you live in a state with no gambling taxes. Again, Uncle Sam wants 24% of your winnings.
This percentage is already significant. It becomes even more noteworthy in a state like California, where you could pay up to a 37.3% total tax (24 + 13.3).
You report gambling wins under the “other income” on Form 1040. The government expects you to report winnings even if you earn just $1.
Tax Casino Winnings Usa Online
Of course, you can almost assuredly get away without reporting a tiny payout. However, a gambling establishment requires you to fill out a W-2G form on big prizes.
Casinos, poker venues, and sportsbook issue W-2G’s under the following circumstances:
- $600 and above for horse gambling and sports betting wins worth 300x your stake (e.g. $3,000 win / $10 bet = 300x).
- $1,200 and above for slots and video poker wins.
- $1,500 and above for keno wins.
- $5,000 and above for poker-tournament wins.
Remember to Deduct Your Casino Losses
The IRS wants you to report all gambling winnings under any circumstance. State governments that tax gambling payouts expect the same.
However, you can deduct any losses incurred as well. You itemize deductions in a different section of your tax form than where the other income is reported.
Your deduction will be subtracted from whatever you win. Here’s an example:
- You win $4,000 at a casino.
- You lose $3,000 while winning this amount.
- You must report the full $4,000 under “other income.”
- The $3,000 goes under itemized deductions.
- $4,000 – $3,000 = $1,000.
- You’d pay the relevant tax rate on $1k.
More on Itemized Deductions
Itemized deductions constitute expenses that you spend to win money. They differ from a standard deduction, which is basically a lumpsum that’s subtracted from your income.
Standard deductions are easier to deal with. Unfortunately, you must use the itemized variety when concerning gambling.
If you’re an amateur gambler, meals, hotel stays, entertaining, and gas/plane tickets don’t count as deductions. You must be a professional gambler to deduct items like these. Instead, you can only count what you spend on gambling.
Keep Casino Gambling Records
You should keep track of your gambling winnings and casino bankroll as best you can. This way, you have evidence just in case the IRS audits you.
When keeping records, you want plenty of information. Here’s an example of five important things you can jot down in your records:
- Type of gambling/game
- Date of gambling session
- Location of the sportsbook/poker room/casino
- Bankroll at the start of the session
- Bankroll at the end of the session
In addition to tracking this info, you should also hold onto other documents that you receive. Bank statements, betting tickets, check copies, and W-2G forms are examples of documentation.
What If You Don’t Pay Taxes on Gambling Winnings?
You may be tempted to avoid reporting winnings from gambling—especially if the money is insignificant. You’ll likely get away with doing so provided you haven’t won big enough to receive a W-2G form.
Of course, I don’t advise failing to report gambling winnings. But you definitely don’t want to avoid reporting wins after receiving a W-2G.
A gambling establishment sends a W-2G copy to the IRS. The latter can easily check this information with their software.
If the IRS catches you not reporting taxes, they’ll probably just send a letter and fine you. However, they can take further action if you refuse to cover the taxes.
Conclusion
Claiming gambling winnings on your taxes varies greatly from one state to the next. Some don’t charge you a dime while others level a large amount.
Of course, you may not really care about the state tax beforehand. If you do win, though, you’ll feel the sting in a state with a high tax rate.
You don’t necessarily need to drive hours away just to avoid high taxes on winnings. However, you might consider taxes if you live near the border of two or more states.
California, Minnesota, New York, Oregon, and Wisconsin are currently the five places with the highest rates. If possible, you should avoid these states when gambling for mid or high stakes.