Taxes on Gambling Winnings

Do You Know How to Report Your Gambling Winnings (and Losses) on Your Tax Return?

As football season kicks off, legal sports betting is at an all-time high in the United States. According to the American Gaming Association’s Commercial Gaming Revenue Tracker, Americans wagered nearly $120 billion on sports betting in 2023.₁ Whether you’re into sports betting, casino games, or other types of gambling,₂ it’s important to understand the tax implications of your gambling winnings and losses.

For some people, taxes on gambling winnings or losses may be an afterthought. Even for people who know that gambling winnings are taxable and that losses are typically itemized deductions limited to your winnings, they may not understand how to properly report them on their tax return. So, let’s review how taxes on gambling winnings and losses work with Marty James, CPA, PFS, who is the managing director of our Indianapolis, Indiana office.

What If You Only Have a Small Amount of Gambling Winnings?

It doesn’t matter whether you win $10 or $10,000, all gambling winnings must be reported as “other income” on your tax return (Form 1040, Schedule 1).₃ If you’re much closer to $10 in gambling winnings per tax year than $10,000, the IRS probably won’t be contacting you. But that doesn’t mean that you shouldn’t keep track of your winnings and losses and file an accurate tax return.

“Gambling winnings are taxable. It goes right on the front page of your tax return, which impacts your Adjusted Gross Income, which has a lot of other issues that that an increase in your Adjusted Gross Income causes within your tax return. Gambling losses are typically itemized deductions, which isn’t very efficient, especially if you’re taking the standard deduction.” – Marty James, CPA, PFS

Important Thresholds for Taxes on Gambling Winnings

What you think is a “small amount” might not be so small for others (and vice versa). Here are some thresholds to be aware of as you’re determining your taxes on gambling winnings. Gambling winnings above these thresholds will generate a Form W-2G.₄

• $600 or more of the winnings reduced by the wager or 300 times the amount of your wager (except winnings from bingo, slot machines, keno, and poker tournaments)
• $1,200 or more of winnings from slot machines or bingo game (not reduced by wager)
• $1,500 or more of winnings from a keno game (reduced by wager)
• $5,000 or more of winnings from a poker tournament (reduced by buy-in or wager)

You’ll also need to report gambling winnings on Form W-2G if your winnings are subject to federal and state income tax withholding. There are two distinctions of withholding when it comes to gambling winnings—regular gambling withholding and backup withholding, both at 24%. Each state will have their own withholding rates and may result in filing multiple state income tax returns.

Don’t Rely on Casino Win/Loss Statements

Marty has witnessed many people report their gambling winnings on Form W-2G and take losses as itemized deductions based on their casino win/loss statements. That isn’t the correct methodology, though, because those statements are just meant to be used as estimates. You also need to report any winnings that don’t produce income so that you’re not underreporting income.

“It actually says on the statement that it’s just an estimate to use for your records to see how they compare.” – Marty James, CPA, PFS

What Is Session Accounting?

As various forms of gambling become increasingly popular, it’s important to be aware of session accounting (see IRS Notice 2015-21).₅ With session accounting, you break down each one of your gambling sessions and report them separately. So, if you’re playing the slot machine and then decide to play roulette, you would be starting a new session. The maximum length of a session is typically a 24-hour day.

Let’s say you’ve been maintaining your gambling records and have a Form W-2G due to having more than $5,000 of poker tournament winnings. If you walk into the casino with $1,000 to play more poker and leave with $0, you can directly offset the W-2G with those losses.

“You’re effectively moving your losses to the front page of your return instead of an itemized deduction. But you still can’t deduct more than you lost.” – Marty James, CPA, PFS

Think of Your Gambling Records like a Mileage Log

Marty recommends being as detailed as possible with your gambling records for each session. He says to think of it as maintaining a mileage log or expense sheet when traveling for work.

“How much money did you begin with? Where’s the casino? Who’s with you? How long did you play? What are your winnings and your W-2G winnings? What are your losses? And then, how much did you walk out with?” – Marty James, CPA, PFS

As you can probably see, taxes on gambling winnings and losses can get very tricky, very quickly even if you do a good job of maintaining your records. Whether you consider yourself to be a recreational or professional gambler, Marty recommends the book, Tax Help for Gamblers, 4th Edition, along with consulting a tax professional if you have any questions.₆

Gambling During Your Working Years vs. Gambling in Retirement

The legal gambling age is typically 18 or 21 depending upon the form of gambling and the state you’re in.₇ When it comes to taxes on gambling winnings and losses, there are additional things to keep in mind for retirees.

Understanding IRMAA

Let’s say that you’re retired and on Medicare. There’s something called IRMAA that you need to monitor. IRMAA stands for Income-Related Monthly Adjustment Amount. When your Modified Adjusted Gross Income crosses a certain threshold, you’ll be required to pay higher Medicare Part B and Part D premiums. Those thresholds for the 2024 tax year are $206,000 for married couples filing jointly and $103,000 for single filers.

Here’s the real kicker, though. It isn’t based upon your income for the current year. Instead, it’s based upon your income from two years prior. So, for 2024, it’s based upon your income from 2022.

We certainly hope this isn’t the case, but let’s say that you’ve had some recent substantial medical expenses and plan to itemize any medical deductions this year. If you pulled some money out of an IRA to pay for some of them and suddenly have additional income to report on the front page of your tax return from gambling winnings, your medical deductions will be reduced. Your deductible medical and dental expenses are limited to 7.5% of your annual adjusted gross income.₈

Roth Contribution and Income Limits

If you have money in Roth accounts, you also need to be aware of the Roth contribution and Roth income limits as they relate to your Modified Adjusted Gross Income. For 2024, you can make up to a $7,000 Roth IRA contribution ($8,000 with a full catch-up contribution if you’re 50 or older). However, to make a full contribution, your Modified Adjusted Gross Income must be lower than $230,000 if you’re married filing jointly ($146,000 for single filers). You can still make a partial contribution if your Modified Adjusted Gross Income is between $230,000 and $240,000 and you’re married filing jointly (between $146,000 and $161,000 for single filers).

What if you’re below those income, but then exceed them following some gambling winnings? You would then need to do a recharacterization of your Roth IRA contribution and take out all your earnings.₉

It All Comes Down to Your Adjusted Gross Income

IRMAA and Roth contributions are just a few tax code provisions that can be impacted by adjusted gross income. Marty compiled a list of 10 key tax code provisions that should be top of mind due to how they’re impacted by adjust gross income.

1. Taxation of Social Security benefits
2. Reduction of medical itemized deductions
3. Roth contributions
4. Roth conversions
5. Spousal IRA contributions
6. Additional IRMAA premiums
7. Loss deductions on rental real estate when actively participating
8. Tax credits (including the Child Tax Credit, Savers Tax Credit, New Clean Vehicle credits, Education Tax Credits)
9. Net Investment Income Tax (NIIT)
10. State income taxes based on federal adjusted gross income

Gamble Responsibly by Understanding the Tax Implications on Your Gambling Winnings and Losses

Whether you’re going to the casino, horse racing tracks, online sports betting, or doing other forms of gambling soon, make sure you understand the tax considerations we’ve reviewed. If you and your friends enjoy gambling together, remember how many different variables there are within your respective financial situations. The tax reduction strategies that you should consider might be completely different from the ones your friends should consider.

Tax Reduction Strategies

If you have questions about taxes on gambling winnings or losses and how they’ll impact your overall financial situation, start a conversation with our team below.

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Obviously, there are potential risks and rewards that come with gambling. The same goes with your investments. The bottom line is that everyone needs to determine what their money needs to do for them in order to accomplish their goals. That’s why our team builds financial plans for people that are tailored to their goals, but factor in key considerations such as taxes.

If gambling is something that you enjoy, do so responsibly. Work with a team of professionals, which includes a CFP® Professional and CPA working together in a coordinated effort on your behalf. We’re here to help you understand taxes on gambling winnings and losses and much more about managing your wealth.

Resources Mentioned in This Article

• Health Care Costs During Retirement
• 5 Tax Secrets Retirees Need to Know
• 2024 Tax Brackets: What You Need to Know
• Taxes on Retirement Income
• What Should I Invest My Money In?
• Roth Conversion Decisions for 2024
• What Happens to Your 401(k) When You Die?
• The Lifetime Learning Credit vs. the American Opportunity Tax Credit
• Tax Rates Sunset in 2026 and Why That Matters
• 2024 401(k) and IRA Contribution Limits
• How Do I Pay Less Taxes?
• Components of a Complete Financial Plan with Logan DeGraeve, CFP®, AIF®
• Why You Need a Financial Planning Team with Jason Gordo
• The CFP® Professional and CPA Relationship with Logan DeGraeve, CFP®, AIF® and Corey Hulstein, CPA

Downloads

• Tax Reduction Strategies

Other Sources

[1] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/american-gaming-association-legal-sports-betting-hits-record-revenue-in-2023-80522087

[2] https://www.greo.ca/en/frameworks/gambling-types.aspx

[3] https://www.irs.gov/forms-pubs/about-form-1040

[4] https://www.irs.gov/instructions/iw2g

[5] https://www.irs.gov/irb/2015-12_IRB#NOT-2015-21

[6] https://www.amazon.com/Tax-Help-Gamblers-Poker-Casino/dp/1944877312/ref

[7] https://worldpopulationreview.com/state-rankings/gambling-age-by-state

[8] https://www.irs.gov/taxtopics/tc502

[9] https://www.investopedia.com/articles/retirement/03/092403.asp