Do You Have To Pay Taxes On Gambling Winnings

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After the thrill of collecting gambling winnings, comes questions about taxes.

In order to claim losses, you must keep gambling records and receipts. Yes, you do get to deduct the losses so you don’t pay income taxes on the winnings, but that is only part of the story. The rest of the story has to do with how gambling winnings affect your Modified Adjusted Gross Income (MAGI). If you receive cash from a sports betting facility, you will receive a total that already has taxes taken out of it. Facilities are required to withhold 24% of your earnings for federal withholding tax. You will see this spelled out in your W2-G when tax time rolls around. However, if you receive off-the-record winnings, these are still taxable.

Yes, gambling income, which includes winnings from slots, table games, horse racing, sports betting, lottery games, jackpots, and the like, is considered taxable income. As such, you are required to report them on your tax return. The car, boat, or Harley Davidson and other noncash prizes also need to be reported.

There are plenty of questions surrounding Pennsylvania taxes and gambling winnings. Now there are even more with the advent of sports betting, betting apps, and online casinos in Pennsylvania.

Here are some answers.

How much are my gambling winnings taxed?

Casinos withhold 25% of winnings for those who provide a Social Security number. If you do not provide your Social Security number, the payer may withhold 28%.

Currently, Pennsylvania’s personal income tax is a flat tax rate of 3.07% which applies to all taxable income, including gambling and lottery winnings. PA has the lowest rate of all states with a flat tax.

The new regular withholding rate

Effective for taxable years beginning after December 31, 2017, the withholding rate under Section 3402(q) applicable to winnings of $5,000 or more from sweepstakes, wagering pools, certain parimutuel pools, jai alai, and lotteries (formerly 25%) is 24%.

Federal Form W-2G, Certain Gambling Winnings

The organization that pays the winnings, in most cases, the casino, is responsible for sending the recipient of the winnings Form W-2G, Certain Gambling Winnings.

Form W-2G reports the amount of winnings to you as well as to the IRS.

The payer is required to send Form W2G only if the winner reaches the following thresholds:

  • The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine
  • The winnings (reduced by the wager) are $1,500 or more from a keno game
  • The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament
  • The winnings (except winnings from bingo, slot machines, keno, and poker tournaments), reduced by the wager, are:
    • $600 or more, and
    • At least 300 times the amount of the wager
  • The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding)

How to report PA gambling winnings on taxes

Do You Have To Pay Taxes On Gambling Winnings In Pa

According to the IRS, you must report the full amount of your gambling winnings each year on your federal taxes. First, you report gambling winnings as

You may receive a Form W-2G showing the amount of your gambling winnings and any tax withheld. Include the amount from box 1 as “Other Income” on Form 1040, Schedule 1 (PDF).

That number then goes on your U.S. Individual Income Tax ReturnForm 1040 (PDF), line 7a (designated “Other Income”). You should attach the Schedule 1 form to your Form 1040.

Include the amount shown in box 2 on the W-2G on line 17 (designated as federal income tax withheld) of your Income Tax Return (Form 1040).

Pennsylvania state taxes for gambling

In addition to federal taxes payable to the IRS, Pennsylvania levies a 3.07% tax on gambling income.

You should report your Pennsylvania taxable winnings on PA-40 Schedule T (PDF). Include the total winnings from line 6 of Schedule T on your Pennsylvania Income Tax ReturnPA-40 (PDF), line 8 (“Gambling and Lottery Winnings”).

If your gambling winnings come during a trip to another state or country, you are still required to report.

Michelle Malloy, Esq. at AUA Capital Management, LLC in Conshohocken, Pennsylvania, commented:

“Pennsylvania takes the position that they are entitled to tax a portion of your worldwide income based on certain income items (wages, interests, dividends, capital gains, gambling winnings, lottery winnings, etc).”

What if I don’t receive a Form W2-G?

If you did not receive Form W-2G, your winnings are still considered taxable income and should be reported. A payer is required to issue you a Form W-2G if you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding.

According to Malloy:

Taxes on online gambling

“You are required to report all gambling winnings for federal and Pennsylvania taxes. If you hit a certain threshold they (the casino) will withhold money. In the instance where a casino doesn’t do their job and and fails to send you a W2-G you are still required to report your winnings, or you run the risk of underreporting your taxable income for the year.”

Do I have to pay taxes if a group of people win the lottery?

What happens when a group of coworkers chip in on a lottery ticket that wins? What about you and a friend who put money on a long-shot team to win the championship?

Meet Form 5754 (PDF). Payers use this form to prepare Form W-2G when the person receiving gambling winnings subject to reporting or withholding is not the actual winner or is a member of a group of two or more people sharing the winnings.

Don’t send Form 5754 to the IRS. Keep a copy for your records and return the form to the payer (usually the casino) for preparation of Form W-2G for each person listed as winners.

Are there any deductions available for taxes related to gambling?

Gambling losses can be deducted. However, they must be itemized on line 28 of Schedule A, Form 1040.

Also, you cannot deduct more than your winnings.

Expenses related to any gambling or lottery activities, (like your dinner at the steakhouse, celebratory drinks from the bar, or cost of hotel room) cannot be deducted.

If you are going to deduct gambling losses, keep these records:

  • The date and type of each wager
  • The name and location of the bet
  • The amount won or lost
  • Wagering tickets
  • Canceled checks
  • Credit card records

When using a players club/members card, casinos can track players’ spend. Therefore, you can request a win/loss report that will give you a fairly good sense of your activity in a casino. Online casino players can request the same report and most sites should be able to provide it without issue.

“A lot of people may under-report,” explained Malloy. “They might win $10,000 but have $3,000 of expenses so they think they are just going to report $7,000. That can be an issue, as Pennsylvania does not allow a deduction for expenses. If you win a lot of money in June, for example, you might want to make an estimated tax payment [due Sept. 15 and Jan. 15] so you don’t have an underpayment penalty the following April.”

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How to claim gambling winnings and/or losses

Pennsylvania provides a helpful resource to determine how to claim gambling winnings and/or losses.

There is a prompt where you can start a ten-minute interview.

Do You Have To Pay Taxes On Gambling Winnings

Be sure to have the following information ready:

  • Your and your spouse’s filing status
  • Amount of your gambling winnings and losses
  • Any information provided to you on a Form W-2G

Taxes on multistate lotteries

The Pennsylvania Department of Revenue considers multi-state lottery prizes, like those from Powerball and Mega Millions, awarded on tickets purchased through a licensed Pennsylvania state lottery ticket vendor, a prize by the Pennsylvania Lottery.

“Such prizes are considered Pennsylvania source income and both residents and nonresidents are subject to tax on such income if the prize is a cash prize. Multistate lottery prizes awarded on tickets purchased through a vendor in another state lottery are considered prizes awarded by that state lottery. Such prizes are not considered Pennsylvania source income and only residents are taxed on such income regardless of whether the prize is a cash or noncash prize.”

Due to a 2016 law change, any cash prize won from a Powerball of Mega Millions ticket in any state is taxable for state purposes, in addition to federal taxes.

What happens if you win a few thousand dollars on a winning PA lottery ticket?

Lottery winnings are included in taxable income. Pennsylvania Lottery winners of an individual prize valued at more than $600 will receive a Form W2-G by mail.

If your spouse also wins, they must report their winnings separately.

“For a significant windfall, like over $5 million, it definitely makes sense to talk to an attorney or accountant to determine if they should take a lump sum payout or annuity. They may also need to think about estate tax planning, financial planning and/or asset protection planning for their windfall,” said Malloy.

Sports betting winnings and taxes

Sports betting winnings are taxable income.

The IRS states:

“Gambling winnings 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.”

Do You Have To Pay Tax On Gambling Winnings Uk

Even though sports betting isn’t specifically listed, it falls under the umbrella of “gambling winnings.”

Wherever your sports betting win occurred – at the OTB, the casino, on a sports betting app – they payer should send Form W-2G.

Sports betting losses might also be used as deductions if you itemize your deductions and keep a detailed record of wins and losses.

Based on your tax bracket, sports bettors in Pennsylvania could owe up to 35 % of winnings to the federal government in addition to the 3.07 % Pennsylvania taxes net gambling winnings.

Online gambling and taxes

Sports betting apps and online casinos provide unmatched convenience. You may also enjoy the anonymity of playing behind a screen name instead of in person. However, it still comes with the same tax responsibilities. Online gambling winnings are considered taxable income at the same rate as other gambling winnings.

For online gambling winnings, the payer is required to send Form W2G only if the winner reaches the following thresholds:

  • The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine
  • The winnings (reduced by the wager) are $1,500 or more from a keno game
  • The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament
  • The winnings (except winnings from bingo, slot machines, keno, and poker tournaments), reduced by the wager, are:
    • $600 or more, and
    • At least 300 times the amount of the wager
  • The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding)

In terms of deductions for taxes, players can request a report from online casinos detailing wins and losses.

The information in this article is up to date through tax year 2019 (taxes filed in 2020).

If you won the lottery, congratulations! You have 60 days to decide if you will take a lump-sum payment, which is one check for the single amount after federal taxes have been withheld, or an annuity, which is smaller annual payments that equal the total winnings. Here are some answers to your most burning lottery tax questions, and some ideas for protecting your newly acquired wealth.

Should I take the lump sum or the annuity when I win the lottery?

Choosing annual payments will place you in a lower tax bracket that year. This will reduce your tax liability. However, there is a strong chance that taxes will go up over the years. If you win the Mega Millions or any other lottery, it is better to take the lump-sum. It may seem like less money up front – but if you take the annuity, the lottery is only required to pay you 4.5% of your earnings per year. It will take you a long time to receive all of your winnings, especially if you win millions. If you take the lump-sum, be sure to hire a financial advisor so you don’t make the same mistakes as so many of the previous winners. Consider immediately investing the lump-sum, and let your investments begin collecting sooner.

Do You Have To Pay Taxes On Gambling Winnings

What federal taxes will I have to pay with a lump-sum payment?

Usually, 25% of the lump-sum will be withheld for federal tax. This is typically less than what you will owe the government. You will need to file a return with Form W-2G that reports your winnings to the IRS.

What federal taxes will I have to pay with the annuity?

If you opt to take annual payments, each installment will be taxed when you receive it. You will still owe more in April than they took out of each payment.

Will I have to pay state taxes on my lottery winnings?

Yes, unless you live in one of the following states: Alaska, California, Florida, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, or Wyoming.

How do I minimize my tax liability?

Use the money to donate to charities. Then itemize your deductions and lower your tax liability. Or gift portions of the money to friends and family. You can give up to $15,000 per person per year before the gift tax applies. You can also put your money in a trust. If something happens to you, this will minimize taxes on your estate.

State Taxes On Gambling Winnings

What is a trust?

A trust allows a third party, known as a trustee, to hold financial assets on behalf of a person, known as a beneficiary. There are several kinds of trusts and ways to set them up. Trusts avoid settling an estate by testing the person’s will, which is known as probate. A trust clearly defines who will receive which assets in case of death and how taxes and debt will be paid. This allows your family and friends to acquire these assets more quickly. If you win the lottery and it is a significant sum, setting up a trust for any remaining money you don’t donate or spend will help your family in the future and protect the money while you are living.

Should I invest my winnings?

Nj Taxes On Gambling Winnings

You can invest whatever money you don’t decide to donate, gift, or place in a trust. If you do this correctly, you might not have to work a normal job anymore. But are you prepared to pay taxes like a millionaire? If you invest a portion of your winnings, the money you receive from these investments will be taxed as capital gains. This is a different tax rate than normal income. Read more here.