Casino players from some countries like Australia and the United Kingdom have it easy. British and Australian laws recognize gambling as a form of recreation rather than a professional source of income. Besides, gamblers stand better chances of losing money than winning over the long run. Due to these considerations, Aussies and Brits do not have to pay taxes on their gambling winnings.
Alas, this is hardly the case in the USA. Millions of people visit gaming hotspots like Las Vegas, Reno, and Atlantic City each year, and some of them are lucky enough to return home with some tasty winnings. However, winners in the United States do not get to keep every penny they have won. Gambling profits in the US are not only taxable but failure to report them could spell some serious trouble with the IRS (Internal Revenue Service).
The following report by Super Casino Sites sheds light on how gambling winnings are taxed in the United States and the procedures of tax declaration for US nationals and foreign winners. US law distinguishes between casual and professional gamblers, and each group is subject to different tax rates. But before we dip further into the particulars, let’s have a look at some figures to give you some context of the US gambling industry.
US Gambling in Figures
Gambling in the United States is almost as old as the country itself although it was not until the early 1930s that legislators started regulating it. When Nevada Governor Frederick Balzar approved Assembly Bill No. 98 in March 1931, few Silver State residents could have anticipated the long-term significance of his decision. Nevada went on to become one of the world’s largest gambling hubs, attracting millions of tourists each year.
Nevada Saw $11.6 Billion in Gaming Revenue in 2019
Nevada and New Jersey Are the Top Earners in Terms of GGR
Taxable Gambling Is a Major Source of Government RevenueGambling Winnings Are Taxable Income under US Law
Gambling operators are not the only ones to pay taxes on their revenue. All gambling winnings are taxable under US law, and this applies to both cash and non-cash gambling prizes. Cash profits are the monetary prizes obtained by playing lotteries, sweepstakes, raffles, bingo, poker, slot machines, keno, and casino table games like blackjack, baccarat, and roulette.
The same pertains to winnings acquired through sports and race wagering. Non-monetary prizes like vacations, cars, or smartphones are also taxable based on their fair market value (FMV) when you have won them through gambling.
Casinos and other gambling operators must report their customers’ winnings to the Internal Revenue Service (IRS) provided that the profits exceed specific amounts. The withholding thresholds vary based on the type of gambling activity, however. Gambling profits are reportable when they are equal to or exceed $1,500 for keno games, $1,200 for bingo and slot machines, $5,000 for poker tournaments, and $600 (or 300x the wager) for other forms of gambling.
| Tax Withholding Thresholds Based on Type of Gambling Activity | |
|---|---|
| Gambling Activity Type | Winnings Withholding Threshold |
| Keno Games | $1,500 or more (minus the bet) |
| Bingo Games and Slot Machines | $1,200 or more (not reduced by the bet) |
| Tournament Poker | $5,000 (minus the bet or buy-in) |
| Other Forms of Gambling | $600 or 300x the wager |
Taxes for Recreational Gamblers
US tax law makes a distinction between professional and casual gamblers. Those who gamble casually for recreation must pay taxes at flat rather than progressive tax rates. It is irrelevant whether a recreational gambler has won $2,000 at a slot machine or $2 million in a poker tournament.
If gambling is not their main source of income, the tax rate imposed on the winnings is 24% regardless of the amount won. The tax withholding for non-cash prizes is again flat at 24% unless the payers contribute the withheld tax, in which case the tax rate jumps to 31.58%.
Regular and Backup Withholding
Form W-2G
Forms 1040 and 1040-SRTax Requirements for Professional Gamblers
As we previously mentioned, the IRS differentiates between casual and professional gamblers. Players who belong to the second category gamble regularly as a job and the IRS treats their profits as earned income. Respectively, such gamblers must report their gaming winnings as self-employment income, which is subject to state, federal, and self-employment taxes.
The tax rates for professional gamblers are progressive rather than flat as is the case with recreational players. The progressive tax percentages vary depending on taxpayers’ capability to pay. Individuals with smaller incomes pay lower taxes compared to high earners, and vice versa. The government and the IRS create tax brackets that correspond to the different groups of taxpayers based on their income.
The IRS adjusts the brackets annually to account for factors like inflation and the changes in the cost of living. The adjustments could put a professional gambler into a new tax bracket from one year to the next. The number of tax brackets also changes. For example, the IRS created 16 brackets back in 1985 but only 7 brackets for 2021.
| IRS Federal Tax Brackets for 2021 | |||
|---|---|---|---|
| Single Filers Income Groups | Income Groups for Married Couples Filing Joint Taxes | Income Groups for Heads of Household | Income Tax Percentage |
| Up to $9,950 | Up to $19,900 | Up to $14,200 | 10,00% |
| $9,951 to $40,525 | $19,901 to $81,050 | $14,201 to $54,200 | 12,00% |
| $40,526 to $86,375 | $81,051 to $172,750 | $54,201 to $86,350 | 22,00% |
| $86,376 to $164,925 | $172,751 to $329,850 | $86,351 to $164,900 | 24,00% |
| $164,926 to $209,425 | $329,851 to $418,850 | $164,901 to $209,400 | 32,00% |
| $209,426 to $523,600 | $418,851 to $628,300 | $209,401 to $523,600 | 35,00% |
| $523,601 or higher | $628,301 or higher | $523,601 or higher | 37,00% |
Professional gamblers must also use Form 1040 but should record their gaming winnings on Schedule C rather than Schedule A. Such gamblers have the option to deduct their losses as business expenses, again on Schedule C.
Tax Requirements for Non-Resident Aliens
One peculiarity of US federal law is that it imposes taxes on the gaming profits of players who lack citizenship in the country. The tax rates for “non-resident aliens”, as the IRS refers to them, are flat and stand at 30%.
As for the exact definition of a non-resident alien, the IRS itself defines it as a person “who has not passed the green card test or the substantial presence test”. For reference, one must stay in the country for at least 31 days per year to pass the substantial presence test and become a resident alien.
Such non-citizens must pay taxes provided that they engage in a business or trade within the USA. Non-resident aliens must report their gambling winnings by using Form 1040-NR. Unlike US citizens, most non-resident aliens who gamble cannot deduct their gambling losses.
US law makes one exception for non-resident foreigners with permanent residency in Canada due to a tax treaty between the two countries. Canadian nationals have the option to deduct their gaming losses up to the amount of their gambling profits.
Deduction of Gambling Losses
US residents have the option to deduct their gambling losses but only on condition they itemize them. Recreational gamblers must do so via Schedule A on Form 1040, whereas professionals should use Schedule C on the same form. Losses are deductible as “other itemized deductions” only to the amount of the gambling profits the player has reported to the IRS.
For instance, suppose you have $4,000 in profits and $6,000 in losses. If so, you will be able to deduct no more than $4,000 of your losses and write off the remaining $2,000. And conversely, if you win $4,000 and suffer losses of $2,000, you can report the $4,000 as gambling income and itemize the $2,000 as a deduction.
Another thing to bear in mind is that strict record-keeping is necessary to deduct your gambling losses. You must record all your profits and losses along with information on where you generated them. The notes should also include the date and type of gaming activity. The IRS will require you to provide statements, receipts, or tickets as additional proof of your winnings and losses.
US gamblers can deduct losses for various forms of gambling, including lotteries, sports betting, poker tournaments, casino table games, slots, raffles, and horse or dog races. Suffering huge losses not only causes anxiety but it can also lead to problematic behaviors with certain players.
Let’s assume, for example, a gambler scores a $20,000 win in one casino and visits another casino the next day where they lose $18,000. The casino personnel at the first venue will still issue a W-2G form for the amount of $20,000 and the IRS will tax the player for this gambling income despite the fact he or she lost $18,000.
Last but not least, we should not forget gambling losses can impact individuals both financially and mentally. Because of this, it is important to play responsibly and in moderation to avoid the crippling effects problem gambling might have on your relationships, finance, and career.