In the past decade, online gambling, or interactive gaming as they call it, has transformed from a niche pastime to a global phenomenon, an activity enjoyed by hundreds of people around the globe. In October 2021, Connecticut became the sixth US state to legalize sites that offer games of chance, with two such platforms going live instantly after a soft-launch period.
Annually, around 40% of American adults visit at least one casino, and New Jersey was the first US territory to allow Garden State operators to run internet gaming hubs back in 2013. Before this year, New Jerseyans, and Americans in general, could still enjoy this hobby, but at offshore sites.
Regardless of where gambling winnings come from, the government, Uncle Sam, wants his due, and it is up to players to disclose their gambling winnings via a W-2G form. That document lists the requirements for reporting and withholding gaming prizes depending on the winning sum, type of gambling done, and the ratio of winnings to wagers. Regarding federal tax, it makes no difference how winnings have been attained. Either through sports betting or casino gaming. They get classified the same way and taxed using the same percentage.
Below, a gambling taxes breakdown gets provided for anyone curious about seeing if Lady Luck is on their side, thanks to remote betting in the US.
How Gambling Winnings Get Taxed & Reported
Essentially, when good fortune smiles upon anyone, the IRS is smiling alongside them, rubbing its hands for its piece of the pie. It is irrelevant if the winnings stem from horse race off-track wagering, lotteries, sweepstakes, casino gambling, or game show appearances. They are income, and if they go about a specific amount ($600 or more), they get taxed at a rate of 24%, which is quite sizable compared to other countries.
The difference between sports betting and gaming is that when a person makes a bet on sporting events, the bookmaker charges him a built-in tax of sorts called the vig/juice for letting him bet on a match/game. That applies online and offline. At US land-based venues, when someone wins over $1,200, the operator must supply that individual with a W-2G form.
Players frequently wonder if they can report their net winnings, and the answer to that question is no. These go on line 21 of the 1040 form, which gets used for reporting annual income. On it, yearly gaming losses must also get entered, on Schedule A, line 16, under Other Itemized Deductions. Online gamblers are unlikely to get tax directions from their chosen sites, so they must be wary and understand the W-2G and 1040 reporting process. The positive of playing over the internet is that most platforms have a betting history window, accessible in players’ site profiles. It lists all the transactions and wagers a person has made while using a site from the day they signed up with it. Hence, printouts/screenshots of this page are an invaluable tool for gambling tax reporting.
Remember, some US regions have state taxes that can apply to gambling winnings. Thankfully, these are usually much less than what the federal government asks to put in its pocket.
The Professional Gambler Classification
Despite how strange it may sound, a decent portion of gambling enthusiasts do partake in online betting as a profession. Therefore, they engage in business activity, so their earnings get noted on the 1040 form in the Schedule C section. The advantages that come with these are that it allows gamblers to deduct expenses that aim to further their professional career, and they can also deduct their gambling losses. Some may think that when playing over the internet, no actual expenses exist. Nevertheless, that is not true, as internet service fees, computer-related costs, office supplies, and research materials can get listed as eligible expenses.
For someone to get defined as a professional gambler, they must pursue this activity with great regularity, full time. Also, they must apply a studied approach to it and implement proper accounting and record-keeping. The burden of proof for meeting these requirements is always on the players who claim they are professional gamblers.
Tips for Withholding Gambling Taxes
In all honesty, there aren’t many game-changing pieces of advice anyone can provide regarding gambling taxes. It is good to remember that losses may be deductible if you are in the red and a pro bettor. You must report losses and winnings separately and only play at sites that record your bets/sessions and their outcomes because the risk of an audit is always there.
Moreover, look to pay your taxes on time to avoid penalties, and keep in mind that smaller increment wins don’t have to get reported on a W-2G form.
This article was written in collaboration with online gambling experts.