Gambling Tax Implications for Winnings & Losses in the U.S.

Gambling in the U.S. comes with an ample legal framework that players must abide by. The confusion many beginners feel when considering registering at casinos may be amplified by the distinctions in legality and specific regulations between the states.

However, this short guide is meant to clarify any ambiguities you encounter:

Gambling Taxes on Online Casino Winnings

Gambling activities are entirely taxable in the United States, so your casino income has to be reported on your tax return. 

This taxation system includes complimentary items. Therefore, if you receive anything from the operator that is meant to encourage you to play, from free drinks to free accommodation, you should take it into account when calculating the total of your gambling income. 

Non-cash prizes are also included. Thus, if your casino prize consists of a car, trip, or anything else besides a sum of money, you need to pay taxes for it as well. 

At the moment, online gambling is only legal in 6 states across the USA. 

However, it is relevant to note that winnings resulting from online casino activities on remote sites are fully taxable by federal law, as they fall under the same jurisdiction as land-based establishments. 

Gambling Taxes & Online Casino Losses

Under certain conditions, online casino losses, as well as any other gambling losses may be deducted from your income when paying taxes in the U.S.

Even so, you can’t report a total of gambling losses that exceeds the tax return reported income. Hence, make sure to separate any deductions into a special category. Additionally, don’t forget to keep a record of earnings and losses on your betting activity.

Taxes for Nonresident Aliens in the U.S.

As a rule, if you’re not a resident of the U.S. or Canada, you’re prohibited from deducting gambling losses. 

To be able to see whether your income is taxable or not, the listed factors have to be taken into consideration:

• The country of residence;
• The gambling type;
• Whether U.S. federal income tax was withheld from your gambling income.

For instance, if you engaged in roulette games in 2021, and the payer didn’t withhold the U.S. federal income tax from the winnings, you are exempt from paying this tax. If the payer already did this when they provided your winnings, you’re entitled to a refund.

Here are the steps taxpayers must follow:

• Send Form 1040-NR;
• Attach Form 1042-S or W-2G;
• Check to see whether you can use the simplified procedure.

If you’re unsure whether you need to pay taxes as a nonresident alien, complete this short test. 

Required Paperwork

Form W-2 G, Certain Gambling Winnings

Form W-2 G is mandatory to send if you earn:

• At least $1200 from slot machines or bingo;
• At least $1500 (reduced by the wager) from keno;
• Over $5000 (reduced by the wager/buy-in) from poker tournaments;
• At least $600 from other games than the ones mentioned above if the payout is 300 times the wager or more.

Form number 1040 or Form named 1040-SR 

You must check the regulations in force to see whether you need to complete Form 1040 or Form 1040-SR. 

Both require you to complete an age/blindness section, where you need to state whether you and/or your spouse were born before January 2, 1957, and whether you and/or your spouse are blind or not. Thus, there is a maximum of four boxes you can check. 

Your standard deduction depends on the number of checked boxes in this section (four maximum). Thus, the higher the number of checked boxes, the higher the deduction, which can be:

• $14.250 or $15.950 if single;
• Between $26.450 and $30.500 if you’re married and filing jointly;
• $26.450 or $27.800 if you’re a widow/widower; 
• $20.500 or $22.200 if you’re the head of the household;
• Between $13.900 and $17.950 if you’re married and filing separately.  

Schedule A (Form 1040), Itemized Deductions

You can classify the deductions related to your betting time by filling in Schedule A (Form 1040). 

The main sections you must complete are:

• Medical & dental expenses;
• Taxes you paid;
• Interest you paid;
• Gifts to charity;
• Casualty and theft losses;
• Other itemized deductions (look for the options within the instruction list);
• Total itemized deductions.

Tax Withholding and Estimated Tax

The federal income tax in question must be paid as you earn your gambling income, as it’s a pay-as-you-go tax. 

You can accomplish this in two ways, either by having your tax withheld from your pay (usually applicable to employees) or from other incomes such as your pensions/commissions or through estimated tax.

The latter is usually applicable to businesspeople who earn through dividends, rents, royalties, and other such incomes. 

Highlights

If you’re a U.S. citizen, you certainly have to declare your gambling winnings and pay taxes for them. 

However, keep in mind that there are numerous conditions under which you must accomplish this: make sure to read all regulations thoroughly and ask for professional advice to ensure that you don’t suffer any legal consequences due to negligence.