Gambling might be an enjoyable pastime for some and it might provide a nice adrenaline rush when you win, but your winnings are subject to federal income tax, and possibly to 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 include income from wagers, bets, lotteries, sweepstakes, raffles, prizes, awards, contests—even that digital blackjack table provided by your local casino on the internet while casinos are closed coast to coast due to a national crisis. 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.
The rules for claiming this income are different depending on whether gambling is hobby or 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 their gaming winnings as "other income" on line 8 of the 2020 Schedule 1. The total of Part I of Schedule 1 then transfers to line 8 of the 2020 Form 1040.
The 2019 Form 1040 is markedly different from the 1040 you used in 2018 and tax returns from earlier years, and the 2020 version is different still. The lines and schedules cited here apply only to the 2020 version of the tax return.
Deducting Gambling Expenses
The expense of bets, wagers, lottery tickets, and similar gaming losses can be deducted on line 16 of the 2020 Schedule A as "Other Itemized Deductions." You must note in the provided space that these are wagering losses.
The Tax Cuts and Jobs Act (TCJA) eliminated many 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.
Unfortunately, you can't deduct your expenses and losses 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.
The TCJA also provides that losses from wagering transactions are limited to the amount of your reported winnings.
You can use your losses to offset your gambling income, but you can't use any losses that are left over from your other sources of income. You might have spent $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.
You can no longer deduct your other expenses, either, such as the cost of traveling to the casino or racetrack, if you win enough to cover them.
Itemizing vs. the Standard Deduction
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 if your primary reason for doing so is 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 for your filing status to make itemizing worthwhile. Standard deductions are $12,550 for single filers, $18,800 for those who qualify as head of household, and $25,100 for those who are married and file joint returns in 2021.
You'd end up paying taxes on more income than you have to if your itemized deductions don't exceed the applicable standard deduction.
If You're a Professional Gambler
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-employment income. Net Schedule C income is subject to federal income tax and to the self-employment tax, plus any state income tax.
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 keep other documentation. 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 required to issue Form W-2G if your winnings are subject to federal tax withholding. This can depend on how much you won and what game you were engaged in to collect those winnings.
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% as of 2020 if 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 1% difference.
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.