An Introduction to Tax Law and Online Gambling

If you win while gambling at an NJ online casino, you’ll need to report your earnings on your annual tax return to the IRS. Here’s an introduction into tax laws and U.S. online gambling.

New Jersey legalized virtual gambling at online casinos in 2013. Since then, laws and regulations dictating the limits and provisions of online gambling have been cropping up in support of safe transactions and legal requirements. As an online gambler, it’s important to know these rules to define your relationship with the casino operators.

Here’s an introduction to tax laws and online gambling with a focus on New Jersey regulations to make sure that you know what’s allowed in the realm of online gambling and what you need to do to make sure that you’re in full compliance before you gamble. You don’t want to score big only to find out you can’t collect your winnings because of a technicality.

New Jersey Casino Control Commission

The Casino Control Act passed in 1976 and determined that casinos could only operate in New Jersey from within Atlantic City. As a result, the New Jersey Casino Control Commission was formed as the first regulatory body in charge of ensuring a separation between casino operators and organized crime in the developing gambling industry.

This commission has corollaries in any state that licenses casino operators. In New Jersey, it is made up of three judiciary bodies, including the Casino Reinvestment Development Authority, which uses money generated by casinos in the state to fund public well-being projects and government initiatives.

As recently as 2010, New Jersey casinos are no longer required to have a state commission employee on-site at all times. The reason is that problems in the government used to necessitate the shutdown of the major casinos, which created huge losses for the state’s revenue.

The Casino Control Act also created the Division of Gaming Enforcement, which is the major judiciary organization that concerns online gamblers. The division’s purpose is to ensure that the gambling operators in New Jersey are free of scams and organized crime and that the mechanics of their games reflect the integrity of their vendors, both of which have to be approved by the agency in order to run a legitimate casino in the state.

The Division of Gaming Enforcement

This agency is the one most directly responsible for the legality and tax laws surrounding online gambling in New Jersey. The Division of Gaming Enforcement’s goal is to protect gamblers from unregulated gambling operations by ensuring that only honest operations with legitimate, chance-based games can receive a license to operate.

This division and the Casino Control Commission work in tandem to issue licenses to authentic gambling institutions. They also continue to enforce their codes throughout the operation’s life span, making sure that they don’t commit any future violations.

There are several categories of violations that a company could commit.

The first involves a player’s right to gamble. If a player is underage or on one of the state’s self-exclusion lists, the casino would violate the division’s rules if they allowed these people to gamble.

In addition, fair gaming equipment, accurate advertising of RTP, odds, promotions, etc., and technical aspects like the security of the transactions also fall under the jurisdiction of the Division of Gaming Enforcement.

The Division of Gaming Enforcement is also in charge of the Technical Services Bureau, which tests software to make sure that it follows rules of legitimate random chance and to verify that jackpots can be won and get paid out to players who win.

All of this is important to understanding taxation in online gambling because these are the institutions responsible for designating casino operators as legal and taxable in the state of New Jersey.

A Guide to Taxes and Online Winnings

In the eyes of the IRS, online gambling winnings are earnings, meaning they are fully taxable. You have to report your winnings on your income tax return, including prizes.

You can get caught for not doing so because of your player account, which legitimate casinos require because of the Division of Gaming Enforcement’s legal responsibility to make sure that gamblers who are underage or on exclusion lists do not use state casinos. To do that, they have to verify that player accounts belong to the people whose information has been entered.

You have to include your winnings on your taxes even if you’re not a resident of the state in which you earned them. It matters, however, how much you won and what type of game it was. Check your state’s tax laws to find out the minimum amount of winnings that require reporting.

Taxes by Type of Winning

The first thing you need to know is that the amount of income tax you pay depends on the amount you win. Lottery winnings below $10,000 are subject to normal state income tax; after that, you have to pay state gross income tax. This means that for winnings of an amount between $10,000 and $500,000 you have to pay 5% in taxes. If you win more than that, you’ll have to pay 8%.

Taxes will be withheld from your winnings only if you provide the operator with a Taxpayer Identification Number. If not, all winnings are taxed at 8% automatically. That’s something to keep in mind before you start playing.

It is the casino’s responsibility to withhold winnings for taxes and send you the appropriate forms when it’s time to file your taxes.

Regardless, your responsibility as the winner is to report your winnings on your income tax returns. The good news is that since winnings are income, you can write off your losses as expenses, up to the amount of your total winnings.

You can even combine your losses across multiple platforms. For instance, if you lost $10,000 in total on sports betting, table games, slot machines, and other bets, but won $15,000 on one spin of a slot machine, you can deduct $10,000 on your tax forms.

The Takeaway

Tax laws in New Jersey state that online gambling winnings have to be reported on your income tax forms. Winnings are considered income, and losses can be written off as expenses and deducted accordingly, up to the amount that you won.

The casino should send you a Form W-2G in compliance with the Division of Gaming Enforcement’s regulations. Even if they don’t, however, it’s your responsibility to stay on top of reporting your winnings so you’re not negligent in paying the proper taxes.