Your Guide to Paying Taxes on Your Casino Winnings
This post about tax rate on casino winnings was updated and republished on Sunday, January 8, 2023.
Do you have to pay taxes on gambling winnings and gambling income?
Yes, you must pay federal income taxes on all forms of gambling winnings or gambling income, including casino winnings and lotteries.
The federal income tax rate is 24% on all casino winnings for U.S. residents, and the state income tax rate for New Jersey is 3% which is required on all gambling winnings.
You should consider itemizing your deductions when you file your income taxes to include all your gambling losses up to the total amount that you won that year — because you are able to deduct gambling losses on taxable income from gambling winnings.
While paying taxes to the federal and state governments on gambling winnings or gambling income is not as exciting as actually winning that money, it’s important to review the process for reporting gambling winnings because the U.S. government requires everyone to pay taxes on any taxable income —which includes gambling winnings. If you get caught skirting your gambling taxes, you could get slapped with an unwanted bill from the IRS.
While we don’t have all the answers about filing your personal taxes and including casino winnings on your tax return, we have put together this guide for paying taxes on your casino winnings in New Jersey. If you won a jackpot or have gambling income in a state outside New Jersey, you will follow a similar process as below but with your state’s tax rate.
NOTE:The information below is merely that — information — and should not be taken as legal advice. You should consult a local tax accountant in your area for specific requirements related to taxes on gambling winnings or gambling income.
Do You Have To Pay Taxes on Your Gambling Winnings?
Yes, you should report any amount of casino or lottery winnings to the IRS, whether it’s a dollar, $1,000, $10,000, or $100,000. That’s because all gambling winnings are considered a form of “other income” that’s subject to income taxes. It’s especially important to report certain larger amounts to the IRS, including the amounts that a casino has already withheld taxes from to the IRS. In fact, New Jersey government says all gambling winnings — even illegal gambling winnings — are subject to the New Jersey Gross Income Tax.
Do You Have To Pay State Taxes on Your Gambling Winnings in New Jersey?
Yes, New Jersey is one of many states that requires residents and non-residents to pay state tax on casino winnings from New Jersey casinos or other gambling or lottery winnings. That includes winnings from playing at a casino in Atlantic City, placing bets at a brick-and-mortar retail bookmaker, betting on sports through a New Jersey-based online sportsbook, or playing at your favorite New Jersey online casino.
Gambling winnings can include any money or prizes earned from:
Horse or dog track gambling
Do You Have To Pay Taxes on Sports Betting Winnings?
Local and state governments consider sports betting and gambling one and the same which means — yes, you must pay taxes on winnings earned from sportsbooks. The caveat is that you only have to pay taxes on sports bet winnings if you net at least $600.
So, you could win several 2-1 bets or a single 600-1 bet making $600 or more — and you would owe taxes on that income. You would include these gambling winnings on the same federal and New Jersey state tax forms based on your residency status.
What is the Tax Rate on Casino Winnings or Gambling Winnings?
The IRS requires a federal income tax withholding of 24% on gambling winnings for U.S. citizens and permanent residents. Non-citizens, except those from Canada, must pay 30%. Canadian winners only pay 24% in taxes.
The tax withholding rates for states can vary by location and game. New Jersey takes 3% of any gambling or casino winnings. For taxes on lottery winnings, the state has tax brackets based on the total prize amount.
What About Taxes on Non-Cash Prizes?
What if you’re gambling and win a prize that isn’t strictly money (i.e. car or television)? We know that money won by gambling is taxable income, but the IRS also taxes non-cash prizes won while gambling at their fair market value. So, if you’re playing a local lottery or bingo with non-cash prizes, be prepared to pay taxes on an item won while gambling.
How To Report Casino Winnings on Your Taxes
Follow these steps for paying taxes on your gambling winnings and understanding the gambling income tax requirements.
1. Give Your Information to the Casino
When you go to cash out your prize at a land-based casino, you’ll likely have to provide two forms of ID and your Social Security Number for tax withholding purposes — since the casino will also need to report it when filing their taxes. The casino may hold winnings of a certain amount until you are able to provide this information. They add information like your full name, address, SSN, and other information to a W-9 that they keep on file to accurately withhold federal and state (if applicable) taxes and issue you tax forms that you will use to file your taxes for the year.
If you’re playing at an online casino, you may need to provide all this information when you first register or before you’re able to cash out any gambling winnings.
2. Have the Casino Withhold Taxes Based on Your Winnings Amount
The casino may withhold the 24% income tax on gambling winnings and pay those to the IRS for you. This will likely happen if the amount you win is more than $5,000 overall. If you win less than $5,000, you may be given the option to take the whole payout and pay taxes later when filing yourself.
So, let’s say you win $4,500 and take the full amount from the casino. You have to keep a record of that amount, on what casino game you played, and what the odds were (if applicable). But if you win more money under $5,000 at a casinos or sportsbooks, you’ll need to track all of those wins, too. Keeping detailed records is best practice all the time, but it’s especially important when you don’t have your taxes withheld by the casino.
3. Keep Detailed Records of Wins and Losses Throughout the Year
No matter how much you win at any casino, sportsbook, or other gaming facility, it’s best to keep all your receipts and tickets — because you can actually deduct gambling lossess against your gambling winnings when tax filing.
You should also keep an eye on your digital records through your casino loyalty account (for brick-and-mortar casinos) or online casino accounts, too. These records help you better track how much you’ve actually won and lost to determine if you owe taxes on your gambling winnings. If you track throughout the year and notice you’re ahead, you can even make estimated tax payments to the IRS throughout the year to avoid a large tax bill when filing your taxes.
4. Receive Your W-2G
Both online casinos and land-based casinos provide you with a tax form at the end of the year that outlines how much money you won at their establishment. Every payer (casino, sportsbook, or other gaming facility) is required to issue a W-2G so you can easily fill out your 1040 and report your winnings. The W-2G is like the “receipt” that shows you paid taxes when you got your payout from the casino, or it’ll show that you won a certain amount and have not paid taxes on that amount yet.
But this form may only be issued when you win certain amounts when playing certain games:
Cash poker games and other table games like craps, roulette, and blackjack never trigger a casino to issue you a W-2G. That means you must keep really good track of all your wins and losses for playing these games. In addition, you may not always be issued a W-2G for other prizes won, such as cars, recreational vehicles, or vacations, so you’ll need to determine the prize’s fair market value and report that on your tax return.
5. Fill Out a Form 1040
When it comes time to file your taxes, you’ll want to gather all your records for wins and losses. These records may include:
A W-2G from every casino at which you cashed out winnings
Your receipts that indicate wins and losses during each visit to a casino
Digital receipts of wins and losses at an online casino or sportsbook
With the information from your records, you’ll list your “other income” (aka your casino winnings) on Form 1040 – Schedule 1. If you are 65 years or older, you would list this income on the 1040-SR – Schedule 1. If you won while visiting the U.S. and you are not a U.S. citizen, national, or permanent resident, you would fill out the 1040-NR – Schedule 1.
E-file tax software, like TaxAct or TurboTax, make this part pretty easy. You just need to input your information from your records based on the questions and prompts, and the software will fill out these individual forms for you.
6. Complete State-Specific Tax Forms
If you won at a brick-and-mortar or online casino in New Jersey, you must complete the NJ1040 form based on your residency status in the state. New Jersey residents must report winnings with an NJ1040 form, while non-residents (aka visitors to the state) must fill out a NJ1040-NR.
E-file tax software should also fill out these forms for you based on your answers to the prompts.
7. Compare Standard Deduction to Itemized Deductions
You can only apply losses against your winnings if you itemize all your deductions, which means keeping an even more detailed record of all your casino losses to make sure you really lost more than that amount and have the records to prove it. Itemized deductions allow you to deduct all gambling losses up to the total amount that you won, which would effectively even out and not require you to pay taxes on that amount.
Taking the standard deduction is typically the easier option for most taxpayers. But with this option, you won’t be able to demonstrate your casino losses and you may still have to pay taxes even if your losses equal or outweigh your winnings.
That’s why it’s important for you to compare your taxes owed by calculating both the standard deduction and itemized deductions. You should be able to do this using e-file tax software.
8. Hire a Tax Professional
Consider working with a tax accountant or professional preparer to make sure you’re filing your taxes correctly and avoid paying taxes on losses. This can be especially helpful for those who don’t usually have complicated tax returns and people who win large amounts of casino winnings or special prizes, like cars, recreational vehicles, vacations, and others.
What Happens if I Don’t Report Casino Winnings on My Taxes?
Even if you don’t receive a W-2G from a casino, you are still responsible for reporting your gambling winnings on your taxes. Make sure to keep all receipts when you cash out at an in-person casino or print out winnings reports from your online casino account before you do your taxes.
If you fail to report your winnings, the IRS may charge you back taxes, interest, and late fees. If you are ever audited, your failure to report casino winnings — especially those of large amounts or winnings over many years — could cost you a lot more in back taxes, interest, and late fees. As they say, it’s better to be safe than to owe the IRS a ton of money.
What if I Am a Professional Gambler?
If gambling and winning is your job, then you need to report your winnings as primary income. You would be considered a self-employed professional, and you would use a Schedule C to report your winnings (as income) and losses, travel expenses, and other gambling-related expenses (as deductions). What’s more, you would be taxed at the regular income bracket for your earnings, rather than the standard 24% for federal income tax on casino winnings.
We’re not tax experts, and you should consult an accountant or tax preparer if you’re unsure of how to report your casino winnings to the IRS and state tax agencies. But we hope this guide can help you better navigate the process and find the resources you need.
What we are experts in is reviewing all the legal online casinos in New Jersey. We have tested these casinos for their customer service, game selection, and welcome bonus offers so you know which casinos are right for you.