Winning Casino Taxes - Things That You Need to Know?
Big wins at online casinos are always a wonderful thing that happens in the lives of gamblers. Now you have enough money to do whatever you like and enjoy your life comfortably. However, while you're basking in ecstasy, the last person who you think of appears and takes away part of your victory, the taxman.
The amount of casino winning taxes may vary because each country and jurisdiction has different regulations on this. However, the fact is they all agree on one basic principle: you must report all of your income, including casino winnings, and submit a corresponding tax rate as prescribed by law.
Today's article will take a closer look at the taxation of casino winnings, how the tax varies for specific casino games and the value of the win, and what happens if you don't report it and pay taxes on time. Read on to find out.
Winning Casino Taxes - Things that you need to know?
Personal income tax says that you will have to pay taxes on your income. According to US law, all casino winnings, no matter how much they are, are considered personal income. Therefore, as a player, your duty is to report all winnings and pay taxes on them in full. The Internal Revenue Service (IRS) expects you to report your winnings, regardless of their value, on your 1040 tax form as “other income.”
When we talk about reporting earnings, we don't mean pure winnings. It involves everything that you win in life from gambling. For example, if you win a motorcycle from a lottery, you still have to pay taxes on that motorcycle, with its cash value calculated by IRS agents.
However, the law in the US also stipulates that for jackpot prizes, the tax will apply if the value of the prize is more than $1,200. For table games, you will only have to pay tax if the value of the jackpot is 300 times or more than you bet to win it.
Another golden rule that you need to know is that you must not deduct your bet from your winnings. All the money the casino refunds to you after each win is taxable, although part of that is your bet refunded when you win. For example, if you bet $20 on a casino game and win $500 of your winnings, your taxable amount is $520, instead of $500.
However, reporting your income to the IRS involves a variety of processes, depending on your award structure and where you won it. In certain situations, if you win a large payout from a slot machine jackpot or table games jackpot, you will be offered a Form W-2G by the casino. We will explain this in more detail below.
What is Form W-2G?
A W-2G form is a type of tax document that a casino or other gambling establishment sends to customers who have won in the previous year so that they fully declare their wins. It is then aggregated by casino operators and reported to the IRS. Form W-2G is an acronym. Legally, its full name is W-2G Format, Certain Gambling Wins.
Winners will fill out a form to file a tax return on their winnings for the year. The information to be declared includes the name, address, and taxpayer identification number (TIN) of an individual receiving the income, the total amount of winnings, the date they were won, the type of bet, and the amount of tax collected. Federal and state imports have been deducted.
After you have won a large amount, casino staff will check your identity, and if you are not already on file, you will receive your W-2G form. If your winnings don't exceed $5,000, you have the option of getting a federal tax deduction. The deduction is 24% for U.S. citizens, and if you're not one of them, it's 30%.
If you cannot provide your identity credentials, the casino will withhold your winnings until you provide the required documents.
Another critical piece of information to keep in mind, the Federal Withholding rate for cash prizes is 24 percent. However, for non-cash prizes, such as cars, televisions, or boats, this withholding increases to 33 percent, approximately one-third of the prize value.
In addition, you do not need to pay taxes immediately after winning a significant amount. The IRS only takes inventory of all your W-2G forms annually. Therefore, when it's due, you'll want to check all your forms and declare them to the taxman.
The Cases Which Trigger Form W-2g On Different Casino Games
The IRS applies different tax collection rules depending on the type of casino games. Therefore, you will need to report your wins according to different processes. Below, we will summarize the most popular types of casino winnings and the tax regulations related to them for your reference.
Slots, Video Poker and Keno
For these three casino game categories such as online slots, keno, and video poker, all jackpot wins over $1,200 will be declared and taxed according to IRS regulations. That's why you often see some slot machines set the jackpot at $1,199, as it eliminates the need for players to fill out a form.
However, things get a little more complicated when it comes to keno. For online keno, the required prize limit for tax returns is $1,200, while this number increases to $1,500 for offline keno.
Federal tax laws treat all table games as games of skill. For games in this category, wins worth more than 300x the stake, with a minimum of $600, are subject to IRS regulations.
However, some games like craps, roulette, or blackjack are exempt from this rule, even though players can win millions of dollars. Even so, you will still have to provide some information to the casino operator, such as ID and SSN, so that the casino can manage your data.
Cash games generally also do not require a W-2G form from the winner, despite the professionalism of the tournament. However, if a player's win is greater than $5,000, you will have to do some paperwork.
How Much Tax Do You Pay on Gambling Winnings?
With that said, all winnings from gambling are taxable. This includes both cash wins and the market value of non-cash wins. Depending on how much you win, you may have to report one or more W-2G forms. Whether or not you have to pay tax on your winnings, you must still report all gambling winnings to the IRS.
As mentioned above, you will be taxed between 24% and 33% of the value of your gambling winnings, depending on whether you can prove you are a US citizen and depending on whether the prize is awarded. Is it in cash or not? In addition, the winning limit required to pay taxes also depends on the type of casino game you play.
As long as you play at reputable and fully licensed casinos, you can expect that you won't have much trouble with the taxman. Besides, the good news is that wins over $5,000 are deductible from income tax.
What Happens If You Do Not Report Your Gambling Winnings?
Many players have sought to hide from the IRS to maximize their profits. These types of questions are quite common on forums. In general, the consequence of not reporting your gambling winnings is that the tax you pay will be charged interest. Therefore, the longer you delay in paying your taxes, the more the tax amount will increase.
The tax office usually won't mind wins worth less than $1,200 when they have more significant issues to deal with. However, if you win consistently but show no sign of wanting to contact the IRS through form 1040, they will consider your case. First, they will contact you with a letter reminding you that you should adjust your 1040 form within a limited time.
However, if you don't respond to consecutive letters sent by the IRS, you may face a summons from your local court and, worse, penalties for tax evasion. Therefore, there is no way you can cheat the IRS, and the harder you try to do it, the greater the consequences you will face.
Any of your casino winnings must be reported to the IRS. Depending on the value of the win, the form of the win, the game you participate in, and whether you are a US citizen or not, you will be required to pay a corresponding tax. You will have to fill out a 1040 form with small wins and a W-2G form with big wins. However, you only need to do so once a year or upon receipt of a cordial letter from the IRS.
There is no way for you to avoid paying taxes on your gambling winnings. If you feel there is something wrong with your tax rate for your sales, it is best to consult a tax professional. Also, play at reputable and licensed casinos. That's how you'll be protected by the casino operator should a tax dispute arise.