When you win the lottery, the IRS wins too

The good news is that taxpayers can generally deduct losses to offset gambling winnings. Here’s what you need to know about gambling and taxes.

What’s taxed

All gambling winnings are taxable in the eyes of the IRS. You’re taxed even if you win overseas, and even on income from illegal betting.

Taxable winnings include:

• Lotteries, including scratch offs
• Raffles
• Sweepstakes
• Bingo
• Keno
• Casino games
• Racing
• Office pools
• Fantasy sports
• Fair market value of non-cash winnings on things like cars, furniture, and real estate

Tax forms for gambling winnings explained

Form W-2G: Certain Gambling Winnings

 You’ll get this form if you win above certain amounts at certain games.

• Bingo and slot machines: $1,200 or more. You don’t pay tax on the money you paid to play.
• Keno: $1,500 or more at Keno. This doesn’t include the money you paid to play. 
• Poker: $5,000 or more. You don’t pay tax on the money you paid to play.
• All other winnings: $600 or more. Sometimes this will include the money you put in to play, and sometimes not.

1040 Schedule A: Itemized Deductions

If you qualify to itemize your deductions, you can use this form to deduct your gambling losses. This will offset your winnings. The only requirements are that you cannot report more losses than your winnings, and you must have records to support your claim.

1040 Page 2: Income Tax Withheld 

Important to know if you receive a W-2G! The 24% withheld may not be enough to cover all the tax you need to pay on your winnings. So don’t be surprised if you have more to pay once you do your taxes.

1040 Schedule 1: Other Income 

You must report all taxable winnings on Schedule 1, whether reported on W-2G forms or not. forget winnings that are not reported such as lotteries, jai alai, pools, and sweepstakes. Remember, winnings are a tax deduction for the business, so IRS gets the information and looks for it on your tax return.

State taxes

You may need to file a state income tax return. However, each state has different rules for taxing gambling winnings. See a Jackson Hewitt Tax Pro to find out if you should file one or more state tax returns.

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 1-800-522-4700.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 25 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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