Gambling Income

What Is Gambling Income?

Gambling income is any money that is generated from games of chance or wagers on events with uncertain outcomes. This income is fully taxable and must be reported on an individual’s federal tax return.

How Gambling Income Works

Gambling income includes any money earned from gambling, whether it be winnings from casinos, lotteries, raffles, horse and dog races, bingo, keno, betting pools or sweepstakes. The fair market value of non-cash prizes such as cars or holidays is also categorized as gambling income.

In certain cases, gambling establishments may be required to withhold 24 percent of gains for federal income tax, reporting this on a W-2G form that is given to the winner and sent to the Internal Revenue Service (IRS). If the lucky gambler does not receive a W-2G form from the payer, they must still report all gambling income to the IRS.

Casinos also issue a W-2G form when withholding is not required for the following type of winnings: $1,200 or more from slot machines or bingo, $1,500 or more from keno games, $5,000 or more from poker tournaments.

The full amount of income earned from gambling less the cost of the bet must be included on a person’s federal tax return. According to the IRS, taxpayers who aren't professional gamblers must report all gambling income not included on a W-2G as “other income” on Form 1040, the standard IRS document that individual taxpayers use to file their annual income tax returns. Shared gambling income, winnings divided by two or more people, should also be reported to the IRS.

Gambling Income vs. Gambling Losses 

Money lost on gambling can also be reported on a federal tax return. There are some limitations, though: Gambling losses in excess of what is won may not be claimed as a tax write-off.

In other words, if a gambler spent $10,000 to win $4,000, they would be unable to deduct the $10,000 expense or the $6,000 overall loss. Tax deductions can only be made on the winning sum, in this case $4,000.

Non-residents of the United States and Canada are unable to deduct gambling losses, according to the IRS.

Advantages of Gambling Income

Another potential advantage for gamblers is that income earned is not taxable at progressive rates, unlike regular income taxes. Gambling winners are always taxed at 24 percent, previously 25 percent, regardless of whether an individual won $1,500 on the horses or $1 million at a poker table.

Non-U.S. residents, meanwhile, are generally taxed at a flat rate of 30 percent on their gambling income.

Special Considerations

Professional Gamblers

Professional gamblers, individuals that gamble on a regular basis, are treated differently. All of their proceeds are usually considered regular earned income and are therefore taxed at normal income tax rates.

Professional gamblers report their gambling income as self-employed income, which is subject to federal income tax, self-employment tax, and state income tax.

Income Tax Withholding

Gambling establishments are required to withhold 24 percent of winnings and report them to the IRS when an individual surpasses certain thresholds — defined as $5,000 or more from sweepstakes, wagering pools, lotteries, or other wagering transactions, as well as when winnings exceeding 300 times the amount wagered.

Interestingly, casinos are not required to withhold taxes or issue a W-2G to players who win large sums at certain table games, such as blackjack, craps, and roulette.