Winning money at a casino can be thrilling, but it also comes with tax implications. As a gambler, it’s important to know when you have to report your winnings to the IRS and pay taxes. This article will examine the IRS requirements for reporting gambling winnings and provide tips on how to reduce your tax burden.
When Do You Have to Report Casino Winnings to the IRS?
The IRS requires you to report all gambling winnings, whether from casinos, racetracks, lotteries, or any other wagering transaction. This reporting requirement kicks in once your total gambling winnings for the year exceed a certain threshold.
Here are the current IRS reporting thresholds for gambling winnings:
- Slot machines and bingo – Winnings over $1,200 require reporting.
- Keno – Winnings over $1,500 require reporting.
- Horse racing, dog racing, jai alai – Winnings over $600 require reporting if the payout is at least 300 times the amount of the wager.
- Other gambling winnings – This includes table games like blackjack, craps, roulette, etc. Any winnings over $600 require reporting.
These thresholds apply to your total gambling winnings for the year from all sources. For example, if you win $500 from slot machines and $700 from blackjack, your total winnings are $1,200 so you must report it to the IRS.
How Do You Report Gambling Winnings?
If your gambling winnings meet the reporting thresholds, the casino or other payer is required to issue you a Form W-2G documenting your winnings. You must provide proper identification and a Social Security Number to receive your W-2G.
You then report the income from the W-2G on your annual tax return. Specifically, you would include it as “Other Income” on Form 1040. The payer also reports the payment to the IRS, so the income will automatically be linked to your Social Security number.
In addition to the W-2G, make sure to keep your own detailed records of all gambling activity. This includes information on each session like date, casino name, games played, amounts won/lost, and expenses like travel costs or casino fees. Good records are essential if you get audited.
Does Withholding Apply to Gambling Winnings?
Unlike wages where tax is withheld every pay period, tax is not automatically withheld from gambling winnings. But you can choose to have tax withheld if you wish. The tax withholding rates are:
- 24% for slot machine, keno, and bingo winnings
- 25% for horse racing, dog racing, jai alai winnings if the payout is at least 300 times the wager
- 28% for all other gambling winnings
Having tax withheld reduces the amount you take home upfront, but it saves you from potentially owing a big tax bill when you file your return. Mandatory withholding starts once slot machine and bingo winnings from a single payout exceed $5,000, and other gambling winnings exceed $5,000 if the payout is at least 300 times the wager amount.
Do You Have to Report Smaller Winnings?
You are not required to report winnings under the IRS thresholds outlined above. But this does not mean the IRS won’t find out about income you fail to report accurately. Casinos and other gambling operators report payouts over certain minimums to the tax agency, even if you don’t get a Form W-2G.
The IRS and state agencies also scour casino rating systems and player loyalty accounts to look for unreported gambling income. With the rise of cashless casinos where you play with a house card or app, your activity is even easier to track.
While you can legally avoid reporting small slot machine hits, frequent jackpots, table game wins, or other gambling income without receiving a W-2G, doing so comes with risk of an IRS audit and penalties for underreporting.
What Documentation Should You Keep for Smaller Wins?
Keep documentation of all your casino play and gambling wins, even if they don’t require reporting to the IRS. This includes details like:
- Date and time you gambled
- Name and location of the gambling establishment
- Type of game played (slots, blackjack, etc.)
- Amounts you wagered
- Amounts you won or lost
Having detailed records can help you prove losses and offset tax liability if you do end up reporting small wins or itemizing gambling deductions. Proving gambling activity without documentation can be difficult if ever questioned by the IRS.
Should You Report Small Winnings to Offset Losses?
Gambling winnings under the reporting thresholds will not trigger any tax bill on their own. But you may still want to report them voluntarily to show losses and reduce your taxable gambling income.
By reporting all your action on your taxes, your wins will be stacked up against your losses. You can deduct gambling losses up to the amount of reported wins. This can lower your tax liability from gambling, especially if you are a high-volume player.
Without reporting small wins, you have no “official” way to deduct losses and reduce taxes. Any unreported wins also remain taxable income in the eyes of the IRS. Consulting a tax professional can help you decide the right approach for your situation.
What If You Have Gambling Winnings and Losses at Multiple Casinos?
If you gamble and accumulate wins and losses across multiple casinos, racetracks, lotteries or other establishments, make sure to combine all activity when calculating taxable income. The IRS thresholds above apply to your total annual gambling winnings.
For example, you may win $500 on a slot machine at Casino A, $700 playing blackjack at Casino B, and $600 on roulette at Casino C. Although these are individually under the reporting requirements, your total winnings are $1,800 so you must report it.
When combining play at different places, keep detailed records that summarize:
- Date and location of each gambling session
- Type of gambling activity
- Amounts wagered
- Amounts won/lost at each location
This allows you to accurately match up and deduct your wins and losses to calculate net taxable gambling income.
Can You Completely Avoid Reporting Gambling Winnings?
Trying to avoid reporting significant gambling winnings altogether is not advisable. As casinos and the gambling industry move toward greater digitization and centralized reporting to regulators, unreported big wins become harder to hide.
Some tips to reduce tax reporting on winnings include:
- Ask for casino payouts in multiple smaller transactions under reporting thresholds
- Spread play across multiple casinos to stay under aggregate reporting requirements
- Take advantage of loss deductions against winnings by reporting all activity
But completely flying under the radar with large wins is very risky. The IRS can assess penalties, interest, and back taxes if they catch unreported income. Jail time is also a possibility for tax evasion.
Will the Casino Report Winnings Under the Thresholds?
Casinos are not required to issue a W-2G or file informational returns on gambling winnings below reporting thresholds. But they still have incentive to keep the IRS apprised.
First, casinos may choose to issue W-2Gs even on small jackpots required. This way they stay in the IRS’s good graces by helping enforce reporting rules. Casinos could face penalties down the line if they are seen as facilitating tax evasion.
Second, casinos file Currency Transaction Reports on cash transactions over $10,000. While not reported directly to the IRS, these reports can tip off authorities about potential unreported income.
Finally, casinos track player activity through rating systems and loyalty programs. This data on big wins not reported via W-2G could be requested by tax agencies at any time.
Should You Avoid Slot Machines to Limit IRS Reporting?
Slot machines have the lowest IRS reporting threshold at $1,200. But avoiding slots to dodge reporting does not make much sense.
First, the W-2G threshold aggregates all gambling winnings, so big wins in other games still require reporting. Second, you may miss out on slots jackpots you want to claim against losses. Third, casinos track all play, so avoiding slots raises an audit flag.
A better approach is using slots within reason and practicing good recordkeeping. Claim losses against wins, and you can offset taxes while still playing the games you enjoy.
What Are the Odds of Getting Audited for Unreported Gambling Income?
Your odds of getting audited for unreported gambling winnings depend on several factors:
- Size of unreported winnings – Larger amounts invite more IRS scrutiny. Even small wins can prompt questions if you appear to live beyond your reported means.
- Frequency of activity – Frequently playing and winning from the same account invites audits.
- Type of gambling – Games with lower reporting thresholds like slots draw more attention.
- Use of house players cards – Gambling tracked via casino loyalty programs is easily audited.
In general, your audit odds go up the more income you attempt to conceal. So while you can legally avoid reporting small wins, doing so in excess or with large jackpots is risky.
Do You Have to Report Gambling Income from Other Countries?
The U.S. reporting rules and thresholds apply to worldwide gambling income, not just domestic. You must report gambling winnings earned in foreign countries to the IRS too.
This includes winnings from casinos, racetracks, lotteries, and any other type of gambling. Common examples include:
- Winning bets on horse races in the United Kingdom
- Jackpots from slots or table games at casinos in Macau
- Profits from gambling online on international betting sites
Many foreign countries do not tax gambling winnings, but that does not exempt Americans from U.S. reporting requirements on worldwide income.
If the amount exceeds IRS thresholds, you may receive a “foreign winnings tax form” instead of a W-2G. But you must still claim the income on your U.S. tax return.
Are There Any Special Rules for Professional Gamblers?
If you gamble professionally, several unique rules apply:
- Gambling losses can be claimed as a business expense rather than an itemized deduction.
- Schedule C is used to report wins and losses instead of Schedule A.
- Business expenses related to gambling may be deductible.
To qualify as a professional, you must gamble regularly with profit intent and not solely for entertainment. Keeping detailed records is essential to proving this business purpose.
The IRS has no exact threshold for hours gambled or portion of income derived from gambling to be considered a pro. But gambling full-time helps justify professional status when claiming losses as business deductions.
Do You Have to Report Winnings as Hobby Income?
If you do not quite meet the IRS criteria as a professional gambler, winnings may instead be reportable as hobby income. Key differences include:
- Losses deductible only up to the amount of reported hobby winnings.
- Schedule A is used instead of Schedule C.
- Gambling expenses are not deductible except when betting occurs.
Hobby gambling is done more casually and primarily for leisure rather than profit. While winnings are still taxable, proving a business purpose allows more deductions to offset liability.
Are Casino Complimentaries Taxable?
Comps or complimentaries refer to free gifts, rewards, and perks casinos give big bettors. Common examples include:
- Free drinks
- Comped rooms
- Meals
- Show tickets
- Spa treatments
The general rule is comps valued at up to $600 can be excluded from tax reporting per win. Beyond $600, the amount is taxable and should be reported as other income if you also have gambling winnings above reporting thresholds.
But the type of comp matters. For example, free slot play and room comps directly tied to actual play are not taxable. Tax-exempt comps not tied to any W-2G winnings do not have to be reported at all.
Can You Go to Jail for Unreported Gambling Winnings?
Failing to report significant gambling income comes with potentially stiff penalties:
- Additional tax owed on the unreported income
- Interest and penalties on back taxes (up to 75% of tax owed)
- Criminal prosecution for tax evasion (five year maximum jail time)
Factors that can trigger criminal charges include:
- Substantially underreporting income
- Repeated and willful violations
- False statements and fraudulent tax documentation
- Flagrant refusal to file returns or cooperate on audit
While the IRS typically does not pursue jail time for isolated reporting omissions, intentionally concealing large gambling profits raises the stakes. Consulting a tax attorney is advisable if facing criminal tax charges.
The Bottom Line
Gambling winnings, like all income, are fully taxable so make sure to report any amounts over the IRS thresholds. Keep detailed records, combine play across all gambling venues, and consider voluntarily reporting smaller wins to deduct losses and offset liability.
Avoiding reporting requirements is unwise and increasingly difficult as casinos enhance tracking. But using losses to offset wins helps minimize taxes owed while playing by the rules and staying off the IRS radar.
