What to Know About Gambling Winnings and Taxes

Winnings are taxable and losses can be deducted

Closeup of a winning blackjack hand and piles of chips

Gambling might be an adrenaline rush, or it might just be a way to kill some time online when you're stuck at home. In either case, your winnings are subject to federal income tax and possibly state taxes as well. The IRS requires that you report the money as income, although it does allow you to claim a deduction for at least some of your losses.

Gambling winnings consist of income from wagers and bets, lotteries, sweepstakes, raffles, prizes, awards, contests—and, yes, even that digital blackjack table provided by your local casino on the internet while casinos are closed coast to coast. Technically, winnings even include the value of that bottle of beer your neighbor had to hand over to you when you made that incredible three-point shot. But the rules are different if you're a professional gambler.

The full amount of gaming income must be included on your tax return. The good news is that the cost of non-winning bets can be claimed as a loss.

Claiming Gambling Income

Taxpayers who aren't professional gamblers should report gaming winnings as "other income" on line 8 of Schedule 1, then on line 7a of the 2019 Form 1040.

The 2019 Form 1040 is markedly different from the 1040 you used in 2018 and tax returns from earlier years. The lines and schedules cited here apply only to the 2019 version of the tax return.

Deducting Gambling Expenses

The expense of bets, wagers, lottery tickets, and similar gaming losses can be deducted as a miscellaneous itemized deduction on line 16 of the 2019 Schedule A, "Other Itemized Deductions." You must note in the provided space that these are wagering losses.

You can't simply deduct your expenses from your winnings and report only the difference as gambling income. Winnings and losses go on two separate forms and two separate places on your Form 1040.

Yes, the Tax Cuts and Jobs Act (TCJA) eliminated most miscellaneous itemized deductions beginning in 2018 through at least 2025, but only those that were subject to the 2% rule—you could only deduct the portion that exceeded this percentage of your adjusted gross income (AGI). This rule doesn't apply to gambling losses, and the TCJA left this deduction intact.

You're still faced with a limit, however. Losses from wagering transactions are limited to the amount of your reported winnings. In other words, you can use your losses to offset your gambling income, but you can't use any leftover losses to subtract from your other sources of income. You might have spend $5,000 to win $2,000, but you can't deduct that $5,000—or even the $3,000 difference. You're limited to a deduction equal to the $2,000 you won.

Now for the good news: You can also deduct your other expenses if you win enough to cover them, such as the cost of traveling to the casino or racetrack.

The standard deductions are pretty significant from 2018 through 2025 under the terms of the TCJA, so it might not be to your advantage to itemize to claim gaming losses. You can't both itemize and claim the standard deduction, too. You'd need more overall itemized deductions than the standard deduction available to you to make itemizing worthwhile: $12,400 for single filers and $24,800 for those who are married and file joint returns as of 2020.

Professional Gamblers

A gambler is considered to be a professional if they gamble full time to earn a living and not merely for fun and excitement. Professional gamblers report their income and related expenses on Schedule C as self-employed income. Net Schedule C income is subject to the federal income tax and to the self-employment tax, plus any state income tax.

You can use excess losses and expenses to whittle away at other taxable income if you're a gambler by profession. 

Record-Keeping for Gambling Activities

The IRS expects professional gamblers to keep records of their bets and winnings. This can be a simple diary of your losses and winnings, but it should include the date, the type of gaming activity you engaged in, the name and location of the gaming establishment or whether you engaged online, and how much you won or lost.

You should also have other documentation in addition to a diary. You can generally substantiate your winnings and losses with:

  • Form W-2G: "Certain Gambling Winnings"
  • Form 5754: "Statement by Person(s) Receiving Gambling Winnings"
  • Wagering tickets, canceled checks, credit records, bank withdrawals, and statements of actual winnings or payment slips provided to you by the gaming establishment
  • Account statements from online wagering sites

A gaming institution is only required to issue Form W-2G if your winnings are subject to federal tax withholding.

A Game-by-Game Breakdown 

The IRS indicates that you should also record the following to support your winnings and losses for specific wagering transactions whenever possible: 

  • Keno: Copies of the keno tickets you purchased that were validated by the gambling establishment, copies of your casino credit records, and copies of your casino check cashing records
  • Slot machines: A record of the machine number and all winnings by date and time the machine was played
  • Table games (blackjack, craps, poker, baccarat, roulette, or wheel of fortune): The number of the table at which you were playing, and casino credit card data indicating whether the credit was issued in the pit or at the cashier's cage
  • Bingo: A record of the number of games played, the cost of tickets purchased, and amounts collected on winning tickets. Supplemental records include any receipts from the casino or parlor
  • Racing (horse, harness, or dog): A record of the races, amounts of wagers, amounts collected on winning tickets, and amounts lost on losing tickets. Supplemental records include unredeemed tickets and payment records from the racetrack
  • Lotteries: A record of ticket purchases, dates, winnings, and losses. Supplemental records include unredeemed tickets, payment slips, and winnings statements

Withholding on Gambling Winnings

Gambling winnings are subject to withholding for federal income tax at a rate of 24% when 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. The establishment should report the amount of the winnings and any tax withheld on Form W-2G in these cases, which is issued to the winner and to the IRS.

The withholding rate was 25% before January 1, 2018, so you can take heart in knowing that you can hold onto that difference of 1%.

In addition to issuing a Form W-2G when withholding is required, casinos will also issue a Form W-2G when withholding is not required for the following type of winnings:

  • $1,200 or more in winnings from slot machines or bingo
  • $1,500 or more in winnings from keno games
  • $5,000 or more in winnings from poker tournaments 

Sharing Gambling Winnings

Fill out Form 5754 if two or more people are to share in the winnings. The casino will divide the winnings among the players and will subsequently report them on separate Forms W-2G to the IRS under the names of each of the winners.

The IRS provides an interactive tool to help you figure all this out and properly claim your winnings and losses. It takes about 10 minutes to complete.

 

Article Sources

  1. IRS. "You Won! What Now?" Page 2. Accessed April 23, 2020.

  2. IRS. "Topic No. 419 Gambling Income and Losses." Accessed April 23, 2020.

  3. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2020." Accessed April 24, 2020.

  4. IRS. "Publication 529 (Rev. December 2019) Miscellaneous Deductions." Page 10. Accessed April 23, 2020.

  5. IRS. "Instructions for Forms W-2G and 5754 (2020)." Accessed April 23, 2020.