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Here’s What You Need to Know About Gambling & Taxes
Lottery winners look happy and a bit dazed when they appear in the news, holding a big cardboard check scrawled with their winnings. Many say they can’t believe their good fortune. After all, they just received one of the biggest payouts of their lives. When they get the actual check, 24% is withheld to cover federal taxes and it often isn’t enough. Especially since state taxes come into play if you are in a state that taxes lottery winnings.
Winning Mega Millions or Powerball lottery jackpots
We all fantasize about what we would do if we won the Mega Millions or Powerball jackpot. The fun of playing the odds, along with ballooning jackpots, entice many people to gamble their hard-earned money for the promise of quick riches. Winning is great, just remember to pay your taxes.
How much do you win playing the lottery after taxes?
If the Mega Millions jackpot is worth $970 million and you were to win it, you could net up to $737 million which is the total $970 million minus 24% in federal income tax withholding. Of course, the total amount of take home is based on other items such as state withholding.
How much do you win playing Powerball after taxes?
If the Powerball lottery is $730 million what would the take home be? Using the method outlined above, we could expect a single winner to take home up to $555 million after subtracting 24% taxes from the Powerball total. Just like Mega Millions, the take home amount is also affected by any state tax withholding, and additional federal taxes may still be pending.
What types of winnings are taxable?
Large or small, all winnings from lotteries, sports, racing, bingo, cards, slot machines, game shows and more must be reported to the IRS and state governments. All winnings from the US and foreign countries, as well as multi-national and international gambling are taxable. So if you win big at a card game in the Caribbean or a casino in Europe, you still have to pay.
How do I report my winnings?
You should report the gross amounts you received. If your winnings are high enough they will be reported on a W-2G. Different types of winnings have different minimum amounts for issuing a W-2G, but the minimum amount you have to report is $1.00, even if you don’t have a W-2G.
Keep in mind, the 24% withheld for the IRS may not fully cover the taxes owed on your winnings. Your income taxes are based on the tax bracket you end up in. The highest federal tax rate is 37%, so you could owe at the end of the year. To avoid this, you can send an estimated tax payment to the IRS when you receive your check. Don’t forget state taxes. Most states tax gambling winnings as income.
Any deductions allowed?
Losing is part of the risk, but you cannot net out your winnings with your losses. You also cannot deduct the expenses you incur to gamble like:
- cover charges at betting venues
However, you can deduct all losses up to winnings on your return. The losses are one of the few miscellaneous itemized deduction still allowed. Keep in mind, the standard deduction amount is very high and most people don’t qualify.
Gambling is one of the oldest forms of entertainment. The price to play can be as low or high as you can stand. But whether you’re playing poker at a friend’s place or betting on the horses at a local track, don’t forget Uncle Sam when you win.
Is gambling becoming a problem?
Gambling problems can happen to anyone, from any background. If you are concerned that your gambling is becoming a problem or already is, help is available. You can use the National Council on Problem Gambling’s Help by State tool to find assistance near you, or simply call 1-800-662-HELP (4357).
About the Author
Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.
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