Federal tax returns do not allow taxpayers to claim a net loss when filing their federal tax returns, and state tax laws differ on reporting gambling income. As of 2015, casinos report to the IRS on a Form W-2G any wins that meet or exceed $1,500 playing slot machines, $1,200 playing keno and $5,000 playing poker.
Are online gambling winnings taxable? Yes, whether you gamble at land-based or online casinos, the money you earn is subject to federal income tax. Known as gambling income, the money you earn from wagers and bets as well as lotteries, sweepstakes, etc. all must be taxed.
In some cases, you will be provided with tax forms that must be turned in to the federal government. The full amount of the gambling income minus the cost of the winning bet will be included on this form. Whether you receive this form or not, it’s important to know your responsibilities when it comes to filing income taxes.
The process of handling gambling taxes is not difficult if you know what to do. With this in mind, the OUSC team created this quicktax guide to help US players report their online gambling income.
Do US Players Have To Pay Taxes For Online Gambling?
So, if you enjoy online gambling at sites like BetOnline or Bovada Casino, do you have to pay taxes? When you choose to gamble online, the money you earn is still taxable. Even if the site is located in another country, you still have to pay taxes.
Online gambling is unregulated in most regions of the US, but taxes must still be paid. Just because you do not receive tax forms, does not mean that your winnings are not taxed.
To the IRS, it does not matter where the money is either. If you have funds in your online casino account, even if it’s an offshore site, it’s taxable. When dealing with online gambling earnings, it’s important to review this information with an accountant to ensure you pay the right amount of taxes owed.
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Below you will find a list of gambling activities that the International Revenue Service considers taxable:
- Prizes
- Private Party Games
- Tournaments
- Scratch Off Tickets
- Other
How Do You Report Gambling Winnings?
The way you report your gambling activities will be dependent on how you win. If you receive a Form W-2G, then this is what you will turn in when filing taxes. Taxes must be filed before April 15th or you must ask for an extension. You will turn this form in as you do your other tax forms for employment to an accountant or tax filing company.
If you do not receive the W-2G form, then you will need to fill out a Form 1040, adding the winnings to Line 21 of the form. The full amount of gambling winnings will be placed on this line.
When filling out the 1040, you will need to configure your losses as well. The expense you had for bets, wagers, etc. will need to be deducted as an itemized deduction. This is done on the “Other Miscellaneous Deductions” line of Schedule A form. This will help to lower the tax amount paid on your total gambling income.
What Types of Records Do You Need?
The information you record while enjoying online gambling can be used during the filing process. It’s important to maintain a log or diary of all your losses and winnings. Keep in mind the following information:
- Dates: You will need to record the date and type of activity completed, including wagers and winnings.
- Location: List the name and location of the gambling facility. In the case of online gambling, this would be the website, such as MyBookie or Café Casino.
- Checks: If you are sent any checks in the mail from winnings, be sure to keep the check stub.
- Paperwork: For some players, winnings will be sent via mail and any paperwork should be kept and used during filing as needed.
Don’t Forget To Pay Your Online Gambling Taxes
When you gamble online, it is important to enjoy yourself, but also remember to file your winnings! The IRS takes gambling money very seriously and you want to be sure that you pay your taxes accordingly. If you need any additional information, be sure to visit the official website of the IRS to find all the previously mentioned forms you will need fo file your taxes.
Yesterday afternoon, New Jersey Governor Chris Christie signed into law Assembly Substitute for Assembly Bill No. 2578, which authorizes internet gambling in New Jersey. The Garden State is keeping pace with Nevada in the budding online gambling market in the United States.
The new law leaves many open questions that we should expect answers to over the next several months. Some include:
- What games will the Division of Gaming Enforcement authorize for iGaming? (Decisions on games are up to DGE.)
- How, if at all, will the State police non-iGaming “commercial enterprises” from making their premises “available for placing wagers at casinos using the Internet”? (See section 28 of the new law.)
- Will player-to-player transfers be authorized? (I doubt it at least initially, for reasons explained here.)
- What states will New Jersey enter into iGaming “reciprocal agreements” with?
Does Nj Tax Their Online Casinos Closing
David Rebuck, Director of the DGE, said earlier today initial regulations should be ready for iGaming “soon.” As for when the first live wager will be accepted, I’ve seen estimates range from six to eighteen months.
Although many iGaming aspects need to be hashed out before sites go live, the taxes imposed by the State on iGaming isn’t one of them. Some tax considerations do remain, however.
Operators
There are three tax components for operators:
- License Fees. The issuance fee is $400,000 minimum. The renewal fee is $250,000 minimum. In addition, iGaming operators must pay $250,000 annually to compulsive gambling programs in the State.
- Internet Gaming Gross Revenue. Operators pay an annual fifteen percent tax on “Internet gaming gross revenue.” IGGR is defined in section 6 as “the total of all sums actually received by a casino licensee from Internet gaming operations, less only the total of all sums actually paid out as winnings to patrons.”
- Investment Alternative. Operators must “reinvest” two-and-a-half percent of annual IGGR through the Casino Reinvestment Development Authority. These funds are used in community and economic development projects in Atlantic City and around the State. If an operator fails to make the reinvestment, then the operator must pay an investment alternative tax at five percent of annual IGGR. In 1999, the Supreme Court of New Jersey upheld the constitutionality of the investment alternative tax. Read the court’s opinion here.
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Under the new law, anyone physically located in New Jersey may place wagers on sites licensed by the State. No, one does not have to be a resident of the State to play.
Federal tax laws apply to intrastate iGaming, of course, so consumers will be required to report on their federal income tax return all gambling winnings from iGaming activity in the State.
As I’ve previously discussed, there appears to be some gray area regarding when the federal tax information and withholding determinations should be made by iGaming operators. Whether or not the IRS issues guidance on regulated iGaming operations remains to be seen.
There is also state income tax. Unlike brick-and-mortar gaming, iGaming offers to the tax authorities easy access of all records of consumer activity. The iGaming regulations will almost certainly require operators to maintain detailed records of winnings and losses for all account holders. The regulations may also require operators to provide a summary form of these records to the NJ Division of Taxation.
Under New Jersey law, gambling winnings are subject to income tax in the State. Accordingly, all gambling winnings earned on iGaming sites in New Jersey are subject to income tax in the State, regardless of whether the consumer is a resident of the State. This means a nonresident may be required to file a New Jersey income tax return to report iGaming winnings.
Nonresidents shouldn’t take the reporting requirement lightly. What may happen if a nonresident with iGaming winnings in the State fails to file a New Jersey income tax return?
The NJ Division of Taxation could make at any time in the future an income tax assessment for the unreported iGaming winnings in New Jersey. If the taxpayer owes the State back taxes, it’s possible the taxpayer could be prohibited from continuing to place wagers on iGaming sites in New Jersey until the taxpayer is compliant with the State’s tax laws. It’s also possible the State could pursue criminal charges against the taxpayer for, among other things, tax evasion and failure to file a tax return.
A follow-up post is in store after the Division of Gaming Enforcement proposes iGaming regulations.
Does Nj Tax Their Online Casinos Open
(Note: Credit to Joe Kristan for the phrase “Tax Roundup.”)