Gambling Winnings Federal Tax Rate

Winning while gambling is fun; however, most people agree that payingtaxes is the opposite.

SHELTON — A local professional poker player faces federal prison time after he failed to pay income tax on more than $1 million in gambling winnings to the Internal Revenue Service, according to. Now the good news is that unlike income taxes, gambling winnings aren't subject to a progressive tax. This means that you'll pay the IRS the same percentage on $5,000 in winnings as you would on.

Therefore, you won’t pay the same tax rate on the entire amount. The tax brackets are progressive, which means portions of your winnings are taxed at different rates. Depending on the number of your winnings, your federal tax rate could be as high as 37 percent as per the lottery tax calculation. State and local tax rates vary by location. In the United States, the tax rate owed on gambling winnings is a flat 25%. If you win big in Las Vegas at poker, the casino must withhold the 25% when collect your cashout, and provides you with IRS form W2-G to report your winnings to the government.

If you’re an Illinois resident who wins a jackpot while gambling, unfortunately, the IRS and the state of Illinois will demand its cut of your profit.

Uncle Sam and the Land of Lincoln consider gambling winnings personal income, regardless of how you acquired them.

So, whether you buy a winning lottery ticket, have a lucky pull on a slotmachine, win at the craps table, make a clever sportsbet, are the last person standing in a poker tournament, leave a video lottery terminal happy or have a good day at the racetrack, this rule applies.

Most Illinois gambling companies will automaticallywithhold a portion of your winnings for tax purposes. However, that doesn’t necessarily mean you won’t owe additional money when you file your tax return.

While tax professionals best handle specific situations, there are tax guidelines for all Illinois gamblers to follow.

Firstly, you should know when you should report your winnings on your returns.

Do I need to report my winnings to the IRS?

Yes. A failure to report gambling winnings could put you at risk of underpayment, which could lead to fines and interest payments.

There are some general guidelines for gauging whether you need to report your gambling winnings on your personal tax returns, however. Those thresholds are:

  • Your winnings from playing bingo or slots (not reduced by the wager) are at least $1,200.
  • Your winnings from a keno game (reduced by the wager) are at least $1,500.
  • The amount of your winnings from playing poker (reduced by the wager or buy-in) are at least $5,000.
  • The amount of your winnings from any othergambling types (except winnings from bingo, slot machines, keno, and poker tournaments), reduced by the wager, are either $600 or more or at least 300 times the amount of your wager.
  • Your winnings are subject to federal income tax withholding for any other reason (either regular gambling withholding or backup withholding).

Pay attention that these thresholds are for an entire tax year. For example, if you get a $200 profit on three separate occasions from betting on sports, that would cross the $600 level.

If you accrue winnings over any of these levels, you need to report them to the IRS and the Illinois Department of Revenue. For your federal tax return, the form you need is the W-2G.

Do I need to fill out a W-2G form?

In most cases, you shouldn’t have to fill out the W-2G form. That’s the responsibility of the casino, racetrack, off-track betting site, sportsbook or VLT machine operator.

Provided the operator has the correct information, each entity you gambled with during a tax year will send you a completed Form W-2G.

This form tells the IRS and you two things:

  • Your total winnings from that source for the entire tax year.
  • Any amount the entity withheld from your winnings for tax purposes.

If they have your taxID (like your Social Security number), it’s standard for casinos and other gambling companies to automatically withhold 25% of your winnings. Without that information, they may withhold as much as 28%.

If you’ve gambled with more than one company over the course of a tax year, you should get a W-2G form from each one. Don’t file your income tax return until you’ve received all the W-2G forms you expect.

How do I report winnings to the IRS using W-2G forms?

Once you’ve received all the W-2G forms you expect, you need to transfer the amounts shown on those forms to your federal income tax return.

The first step to doing so is adding up the amounts in Box 1 of all the W-2G forms you have.

Once you have that total, list it as “OtherIncome” on Form 1040, Schedule 1. The total of all income that fits that classification then goes on Line 7a of your Form 1040. Illustration roulette casino slots.

Attach Schedule 1 to your Form 1040. Box 2 on your W-2G form(s) show(s) the amounts that the entity or entities you gambled with withheld from your winnings for tax purposes during the year.

Again, add those amounts up if you have more than one W-2G. That total then goes on Line 17 of your 1040. Do not attach any of your W-2G forms to your 1040.

Keep these forms in your records for at least five years. At that point, you’ve completed your obligation to report your gambling winnings to the IRS.

Whether or not you will have to pay tax on your winnings depends on how much you won, how much the gambling company withheld, and what is the federal tax rate.

Now, it’s on to your state taxes.

Illinois state taxes for gambling winnings

The state of Illinois considers all gambling winnings to be personal income. Again, how much you will owe depends on how much income you collected from all sources during the year.

Currently, Illinois has a flat tax rate of 4.95% for all residents. That could change for 2021 and beyond, however, if Illinois voters approve of a constitutional amendment that would authorize a graduated tax.

If you’re a full-time Illinois resident, you should report your gambling winnings on Form IL-1040. If you won cash or a prize gambling within Illinois, you would need a Schedule M and a Schedule IL-WIT.

Schedule M lets the Illinois Department of Revenue know how much you made in profit from in-state gambling over the course of the tax year. Again, this is where your W-2G forms come in handy.

Add up all the amounts from Box 1 on all your W-2G forms. Then, put that amount on Line 11 of your Schedule M and denote it as gambling winnings. The total from Line 12 of your Schedule M goes on Line 3 of your IL-1040.

Attach the Schedule M to your IL-1040. Again, do not attach your W-2G forms to your state return. Schedule IL-WIT is how you report any amounts withheld from your winnings by a gambling company in Illinois.

Report each W-2G form on a separate line on the Schedule IL-WIT. Then, transfer your total from Line 11 to Line 25 of your IL-1040. Attach the Schedule IL-WIT to your IL-1040.

How do I report out-of-state gambling winnings?

If you won cash or a prize gambling in another state and that gambling company withheld state income tax there, you could claim that as a credit against your Illinois tax liability.

Use a Schedule CR for that purpose. Put your total non-IL gambling winnings in Column B, Line 15. Then, put the amount paid to another state on Line 51.

Once you’ve completed all the steps, put your amount from Line 55 on your IL-1040 on Line 15. Attach Schedule CR to your IL-1040.

All these steps are made easier with the all-important W-2G forms. However, if you don’t receive one, that doesn’t mean you’re off the hook for reporting your gambling winnings.

What if I didn’t get a Form W-2G?

If you didn’t receive a W-2G form, you should contact the company where you won cash or a prize money while gambling.

The operator might have incorrect address information or there may have been some other oversight made that you can help them correct.

If that doesn’t get a Form W-2G in your hands, that doesn’t mean you’re off the hook for reporting your gambling winnings, however. At least some, if not all cases, the tax you would owe has already been withheld, so you’re only hurting yourself by not reporting.

If you underreport your income, the Illinois Department of Revenue and/or the IRS can levy fines against you, seize your assets, garnish your pay and charge interest against your back taxes. In the long run, you save money and time by following the law.

If you’re uncertain of how much you won, bank statements and gambling companies’ rewards accounts can be helpful.

Some winners also have similar questions about what to do regarding non-cash prizes.

What if all or part of my gambling winnings weren’t cash?

If you won a boat, car, house, etc., gambling, the IRS and the IL Dept. of Revenue do levy taxes upon those prizes. The entity granting the prize should submit a federal Form 1099 with your tax information stating the fair market value.

That amount goes on Line 21 of your federal Form1040.

For your state taxes, you would report it the same as you would cash winnings, again, using the gambling company’s fair market value on the 1099.

The same goes for if you win cash playing a multistate lottery game like MegaMillions or Powerball. The IllinoisLottery participates in those games, so you would report it in the same way you would report winnings from an IL lottery game.

If you’re part of a group of people who pooled your money to buy a lot of lottery tickets and split a prize, there’s a special procedure for that situation. It does require a little bit of work on your end.

What if I’m part of a group of people who won a prize gambling?

If you are among a group of people who split prize winnings, meet federal Form5754.

Federal Withholding On Gambling Winnings

On that form, you’ll put information like addresses, names, and tax IDs about everyone in the group. Once you’ve filled it out, make a copy for everyone in the group.

Then, submit the original to the entity granting the prize. That company will use that information to send everyone an individual Form W-2G.

Once you’ve got that, you can go through the standard procedure of reporting those winnings to the IRS and the IL Department of Revenue. Do not attach the 5754 to your federal or state tax returns. Keep it for your records.

Now that we’ve gone through all the scenarios, there is a bit of good news. The IRS does afford you some wiggleroom on gambling.

What can I deduct from my taxes related to gambling?

You can deduct your gambling losses from your federal income tax liability, but only if you choose to itemize your deductions. It would still be beneficial to take the standard deduction even if you gambled regularly in some cases.

You can only deduct what you lost while gambling. If you stay in a hotel, eat at a restaurant, get something to drink, etc., while you’re gambling, those expenses are notdeductible.

Additionally, the IRS does not allow you to deduct more in losses than the winnings you report. Also, note that the Illinois Department of Revenue does not allow you to deduct gambling losses from your state liability.

If you do elect to itemize your federal deductions, calculate all your gambling losses from the year.

Place that total on Line 28 of Schedule A, Form 1040. Also, keep detailed records of the gambling losses you deduct for a period of at least five years.

Once again, this is where joining gambling companies’ rewards programs can be helpful. The programs can provide you with a detailed list of your losses over the course of a year’s time. Online sportsbooks are great at making this easy.

Sports betting winnings and taxes

Online and retail sportsbetting is the newest form of gambling in Illinois. For tax purposes, however, it’s the same as any other form.

If your cumulative winnings over the course of a year surpass $600, you must report that as income.

You should receive a Form W-2G from each sportsbook that paid out to you over the course of a year. Again, use the information on those forms to report your winnings to the IRS and the state.

You can deduct the amounts you wagered and lost on your federal taxes if you itemize your deductions. You can’t deduct wagers from winning bets, however.

Regardless of where your gambling winnings came from, your tax responsibilities are the same. Once you’ve paid and reported, the rest is yours to enjoy as you please.

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Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.

Casino Winnings Are Not Tax-Free

Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.

By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.

How Much You Win Matters

While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:

  • $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
  • $1,500 (reduced by the wager) in keno winnings.
  • $1,200 (not reduced by the wager) from slot machines or bingo
  • $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.

Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.

Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.

What is the Federal Gambling Tax Rate?

Standard federal tax withholding applies to winnings of $5,000 or more from:

Winnings
  • Wagering pools (this does not include poker tournaments).
  • Lotteries.
  • Sweepstakes.
  • Other gambling transactions where the winnings are at least 300 times the amount wagered.

If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.

The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.

Federal tax rate on gambling winnings

It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.

Can You Deduct Gambling Losses?

Federal Tax Rate On Gambling Winnings

If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.

Gambling Winnings Federal Tax Rates

The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.

What About State Withholding Tax on Gambling Winnings?

There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.

Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.

State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.

How to Report Taxes on Casino Winnings

You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.

You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.

Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.

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