Foreword｜PHL63
You’ve finally landed a Sevens in the window of your favorite slot machine, or maybe you’ve landed the Royal Flush on Mississippi Stud that you’ve been waiting for years.
The taxman is probably the furthest thing from your mind. But the sad reality is that you’ll have to pay taxes on slot machine jackpots of $1,200 and up, and most table game jackpots pay more than 300 to 1. Technically, of course, all gambling winnings, no matter how small, count as income in the United States.
The IRS wants you to report them (whether it’s $1 or $10,000) as “other income” on your Form 1040. But in some cases, such as slot machine or table game jackpots, the casino generates a W-2G form outlining to the IRS what you won and whether you paid taxes.
W-2G federal withholding tax is 24% for US citizens and 30% for non-citizens. We’re certainly not tax experts, but we can walk you through the process of when a casino issues a W-2G and what you can expect.
But first, “Congratulations on your big win!”…that’s exactly what you’re likely to hear before casino workers start asking for your ID and your Social Security Number (SSN). There are certain circumstances in which you wish to have federal withholding tax withheld.
When Form W-2G is Needed｜PHL63
So, in typical IRS fashion, each type of gambling win has different reporting requirements. Ever wonder why some casinos set their slot machine or video poker jackpot at $1,199? Well, here is your answer.
Slots, video poker and keno｜PHL63
All slot and video poker jackpots of $1,200 or more will trigger W-2G. This also appears to apply to e-keno, although the IRS website lists the reporting requirement for live keno as $1,500.
Table games｜PHL63
All table games are considered games of skill under federal tax laws. Skill games get W-2G if odds are 300 to 1 or more and at least $600. Certain table games, such as craps, roulette, or blackjack, have never issued W-2G, even though the payouts are in the millions.
However, not receiving a W-2G does not mean you will not be taxed on your winnings. All large withdrawals in the cage require ID and SSN or other documentation, leaving a paper trail anyway.
Poker｜PHL63
While cash games don’t generate W-2Gs, whether you’re a pro or an amateur, tournament winnings over $5,000 will be filled out by the casino or poker room. Your tournament buy-in will be deducted from this amount.
Many pros view poker as a business, even opening a limited liability company. This allows them to write off losses on wins and deduct expenses such as hotel rooms.
Sports Betting and Horse Racing｜PHL63
Wins in sports betting or horse racing also have W-2Gs done on 300-to-1 wins and wins of at least $600. Since 2018, more than 25 states have legalized sports betting, bringing in tens of millions in new taxes.
More and more states pass legislation to allow sports betting every year, and many of these states have rules that allow mobile sports betting. The ability to bet on games via mobile, and the increase in in-game betting, could mean there will be plenty of new W-2G.
In-game betting allows you to bet on various outcomes from each game, such as whether the next play will be a pass or a run, or whether the next batter will strike out. These bets can then be strung together in parlays and parlays that usually pay out over the 300-to-1 threshold.
I’m a big winner, now what?｜PHL63
Casino staff will ask for your identification and they will need a W-9 form if they don’t already have it on file for you.
Form W-9 is an IRS tax form that verifies the name, address, and taxpayer identification number (TIN) of the individual receiving the income. It allows casinos to identify to the IRS which tax filer the paperwork applies to. If the expense is less than $5,000, they will ask you if you want to withhold federal taxes.
If you refuse to provide both forms of identification, you will not be paid. However, the winnings will be kept in the cage for a period of time to allow you time to reconsider or be able to provide the requested documentation. If you deny the W-9, backup withholding tax will be withheld at the rate of 28%. While the federal withholding tax is 24% on cash, it rises to 33% for prizes like cars or boats.
In some cases, individual states also withhold taxes. Nevada is not one of them, though. When you file your taxes, you’ll need to tally all of your W-2Gs and other gaming winnings for the year and report them.
As mentioned, we’re not tax professionals, but one mistake we see repeatedly is people not withholding federal taxes on small prizes under $5,000. Most people mistakenly think they can offset those winnings with losses and not owe federal tax, but that’s only if you itemize your taxes instead of taking the standard deduction.
Tax code changes in 2018 nearly doubled the standard deduction. The list of things you can deduct if you itemize is cut, so most Americans won’t be itemizing anymore. This means the IRS will have a W-2G with unpaid withholding tax and you will have no qualifying losses.
It is best to have withholding tax deducted from all jackpots unless you have spoken to a professional tax planner or you are confident in itemizing deductions and properly recording all gambling wins and losses.
Conclusion｜PHL63
There are only a few certainties in life, and taxes are certainly one of them. We hope you enjoy your big wins, but the IRS wants you to share. Remember, the IRS wants to report all gambling winnings, not just jackpots.
If you do receive a W-2G, remember to include it on your year-end taxes, even if you have tax deductions, so the IRS can see that everything matches. If you have several W-2Gs or a huge win, consider using both the standard deduction and the itemized deduction for tax purposes to see which is better.
Or better yet, consult a tax professional.
