Do you keep all your earnings after risking it all in Vegas and winning the jackpot? Unfortunately, the federal government will sneak in and demand a share of your luck. Federal taxes are compulsory and inescapable. In fact, all wins from gambling activities, whether at home with a friend or in established casinos, are liable to taxes.
All wins from gambling are treated as a form of income. In the US, all types of income, including from illegal activities, must be filed and paid. The IRS does not care about the legality of the income as long as it gets a cut. Generally, money earned from small wins is added to the total income you earn from your job.
Professional gamblers keep a detailed ledger of their wins and losses to help them calculate taxes at the end of the year. The ledger records all profits and losses together with dates when the losses or wins occurred. Unfortunately, many recreational gamblers do not keep track of the games for taxes they play and large wins that trigger wins large enough to trigger a mandatory W2-G. Not tracking your wins and losses is a miscalculation, as you can use the losses to offset your total tax obligations.
The W2-G form is a federal tax form that records wins at a set threshold. Income recorded using the W2-G form helps players as it details wins and may not lead to an audit if it is not declared in the year’s tax returns.
W2- G
The current threshold that triggers the w2-G is $1,200, set in 1977. Some legislators have, however, been pushing for an increase to $5,000. Till then, we are stuck with this little amount. The w2-G is triggered depending on the game you are playing as follows
$1,200 (Bing and slots without reduced wager)
$1,500(Keno game reduced by wager)
$5,000 for a poker tournament game reduced by a buy-in
$600 for horse track, or if you win 300x your wager
300x wager for side-bets on table games; otherwise, nothing
How Casino Handle Taxes on Jackpots
Casinos do not have to withhold taxes as long as you provide your taxpayer identification number that they will share with the IRS. It is prudent to let them keep a percentage of your win to pay the tax rather than get surprised by a huge tax bill at the end of the year.
If you cannot provide your tax identification number, the casinos must keep 24% of your winnings and pay the IRS. Most foreign nationals will, however, have to shell out 30% of the winnings, though some nationalities do not pay taxes at all. All jackpots will only be paid to those with valid IDs, so have one on hand. It is good to discuss with a tax professional how to handle your gambling winnings, especially jackpots from casinos, to manage your account and avoid large tax bills.
