Whether you play the ponies or pull slots, your gambling winnings are subject to federal income tax. By the end of January, you may receive tax Form W-2G Certain Gambling Winnings from the casino or other payer that provided your winnings.
W-2G Forms Are for Winners
When reporting gambling income, the most important information to enter on Form W-2G is:
- Reportable winnings: This amount indicates gross winnings, minus the amount of the wager or buy-in (depending on the type of gambling activity).
- Date won: This is the date of the winning event, not the date on which you were paid the winnings.
- Type of wager: If other than a regular race bet, enter the type of wager, such as Daily Double, Big Triple, or Pick 6.
You don't necessarily receive a W-2G for all gambling winnings. A gaming facility must report your winnings when:
- Horse race winnings of $600 or more (if the win pays at least 300 times the wager amount)
- Bingo or slot machine winnings are $1,200 or more
- Leno winnings, less the wager, are $1,500 or more
- Poker tournament winnings, minus the wager or buy-in, are more than $5,000
If you receive multiple W-2G forms, you must enter the winnings for each of them when preparing your tax return. You must also report winnings even if the payer doesn't send you a Form W-2G. Track your winnings by keeping accurate logs and receipts, such as:
- Entry tickets and fees
- Wager statements
- Payment slips
Such receipts also come in handy if you itemize tax deductions and can deduct your gambling losses. You can deduct gambling losses only up to the extent of gambling winnings, and the losses can never exceed the winnings. For example, if you wagered $5,000 and won $2,000, you can only deduct $2,000 in losses.
A payer may also send you a Form W-2G if it withholds part of your winnings for federal income tax purposes. You will find the amount of withholding in box 4 on the form.
Example: If you win a non-state lottery prize of $10,000, the payer could withhold 25% upfront to pay the IRS in the event you fail to report the winnings at tax time. In this case, box 4 would indicate $2,500 ($10,000 x .25 = $2,500).
There are two types of withholding:
- Regular withholding of 25% on cash payments where the winnings minus the wager exceed $5,000; or 33.33% for certain noncash winnings such as a car (this applies to non-state conducted lotteries, sweepstakes, and wagering pools, but not to keno, bingo or slot machine winnings)
- Or backup withholding at 28% of the payment on bingo, keno, slot machines and poker tournaments (payments that are subject to regular withholding can’t be subject to backup withholding)
Also, if you failed to provide the payer with your Social Security number, your winnings will be subject to backup withholding at an increased rate of 28%, which the IRS collects from the gaming facility.
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