If, like the vast majority of people, you’re a casual recreational gambler, you’re supposed to report all your gambling winnings on your tax return every year. You report the amount as “other income” on Schedule 1 of IRS Form 1040. You list them as 'other income' in line 21. Gambling Losses To claim your gambling losses, you have to itemize your deductions. Gambling losses are a miscellaneous deduction, but - unlike some other miscellaneous deductions - you can. Gambling Winnings & Losses. Gambling winnings are reported as Other Income on Line 21 of IRS Form 1040. While you may be able to deduct your gambling losses, gambling winnings are not directly offset. Gambling winnings don’t qualify, though. They do not fall under the “effectively connected” label, and thus you need to report on Form 1040-NR. Typically non-residents are subject to a flat rate of 30%. And while the nonresident alien must pay tax on his or her winnings, he or she cannot deduct gambling losses.

After the thrill of collecting gambling winnings, comes questions about taxes.

Yes, gambling income, which includes winnings from slots, table games, horse racing, sports betting, lottery games, jackpots, and the like, is considered taxable income. As such, you are required to report them on your tax return. The car, boat, or Harley Davidson and other noncash prizes also need to be reported.

There are plenty of questions surrounding Pennsylvania taxes and gambling winnings. Now there are even more with the advent of sports betting, betting apps, and online casinos in Pennsylvania.

Here are some answers.

How much are my gambling winnings taxed?

Casinos withhold 25% of winnings for those who provide a Social Security number. If you do not provide your Social Security number, the payer may withhold 28%.

Currently, Pennsylvania’s personal income tax is a flat tax rate of 3.07% which applies to all taxable income, including gambling and lottery winnings. PA has the lowest rate of all states with a flat tax.

The new regular withholding rate

Effective for taxable years beginning after December 31, 2017, the withholding rate under Section 3402(q) applicable to winnings of $5,000 or more from sweepstakes, wagering pools, certain parimutuel pools, jai alai, and lotteries (formerly 25%) is 24%.

Federal Form W-2G, Certain Gambling Winnings

The organization that pays the winnings, in most cases, the casino, is responsible for sending the recipient of the winnings Form W-2G, Certain Gambling Winnings.

Form W-2G reports the amount of winnings to you as well as to the IRS.

The payer is required to send Form W2G only if the winner reaches the following thresholds:

• The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine
• The winnings (reduced by the wager) are $1,500 or more from a keno game
• The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament
• The winnings (except winnings from bingo, slot machines, keno, and poker tournaments), reduced by the wager, are:
  • $600 or more, and
  • At least 300 times the amount of the wager
• The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding)

How to report PA gambling winnings on taxes

According to the IRS, you must report the full amount of your gambling winnings each year on your federal taxes. First, you report gambling winnings as

You may receive a Form W-2G showing the amount of your gambling winnings and any tax withheld. Include the amount from box 1 as “Other Income” on Form 1040, Schedule 1 (PDF).

That number then goes on your U.S. Individual Income Tax ReturnForm 1040 (PDF), line 7a (designated “Other Income”). You should attach the Schedule 1 form to your Form 1040.

Include the amount shown in box 2 on the W-2G on line 17 (designated as federal income tax withheld) of your Income Tax Return (Form 1040).

Pennsylvania state taxes for gambling

In addition to federal taxes payable to the IRS, Pennsylvania levies a 3.07% tax on gambling income.

You should report your Pennsylvania taxable winnings on PA-40 Schedule T (PDF). Include the total winnings from line 6 of Schedule T on your Pennsylvania Income Tax ReturnPA-40 (PDF), line 8 (“Gambling and Lottery Winnings”).

If your gambling winnings come during a trip to another state or country, you are still required to report.

Michelle Malloy, Esq. at AUA Capital Management, LLC in Conshohocken, Pennsylvania, commented:

“Pennsylvania takes the position that they are entitled to tax a portion of your worldwide income based on certain income items (wages, interests, dividends, capital gains, gambling winnings, lottery winnings, etc).”

What if I don’t receive a Form W2-G?

If you did not receive Form W-2G, your winnings are still considered taxable income and should be reported. A payer is required to issue you a Form W-2G if you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding.

According to Malloy:

“You are required to report all gambling winnings for federal and Pennsylvania taxes. If you hit a certain threshold they (the casino) will withhold money. In the instance where a casino doesn’t do their job and and fails to send you a W2-G you are still required to report your winnings, or you run the risk of underreporting your taxable income for the year.”

Do I have to pay taxes if a group of people win the lottery?

What happens when a group of coworkers chip in on a lottery ticket that wins? What about you and a friend who put money on a long-shot team to win the championship?

Meet Form 5754 (PDF). Payers use this form to prepare Form W-2G when the person receiving gambling winnings subject to reporting or withholding is not the actual winner or is a member of a group of two or more people sharing the winnings.

Don’t send Form 5754 to the IRS. Keep a copy for your records and return the form to the payer (usually the casino) for preparation of Form W-2G for each person listed as winners.

Are there any deductions available for taxes related to gambling?

Gambling losses can be deducted. However, they must be itemized on line 28 of Schedule A, Form 1040.

Also, you cannot deduct more than your winnings.

Expenses related to any gambling or lottery activities, (like your dinner at the steakhouse, celebratory drinks from the bar, or cost of hotel room) cannot be deducted.

If you are going to deduct gambling losses, keep these records:

• The date and type of each wager
• The name and location of the bet
• The amount won or lost
• Wagering tickets
• Canceled checks
• Credit card records

When using a players club/members card, casinos can track players’ spend. Therefore, you can request a win/loss report that will give you a fairly good sense of your activity in a casino. Online casino players can request the same report and most sites should be able to provide it without issue.

“A lot of people may under-report,” explained Malloy. “They might win $10,000 but have $3,000 of expenses so they think they are just going to report $7,000. That can be an issue, as Pennsylvania does not allow a deduction for expenses. If you win a lot of money in June, for example, you might want to make an estimated tax payment [due Sept. 15 and Jan. 15] so you don’t have an underpayment penalty the following April.”

How to claim gambling winnings and/or losses

Pennsylvania provides a helpful resource to determine how to claim gambling winnings and/or losses.

There is a prompt where you can start a ten-minute interview.

Be sure to have the following information ready:

• Your and your spouse’s filing status
• Amount of your gambling winnings and losses
• Any information provided to you on a Form W-2G

Taxes on multistate lotteries

The Pennsylvania Department of Revenue considers multi-state lottery prizes, like those from Powerball and Mega Millions, awarded on tickets purchased through a licensed Pennsylvania state lottery ticket vendor, a prize by the Pennsylvania Lottery.

“Such prizes are considered Pennsylvania source income and both residents and nonresidents are subject to tax on such income if the prize is a cash prize. Multistate lottery prizes awarded on tickets purchased through a vendor in another state lottery are considered prizes awarded by that state lottery. Such prizes are not considered Pennsylvania source income and only residents are taxed on such income regardless of whether the prize is a cash or noncash prize.”

Due to a 2016 law change, any cash prize won from a Powerball of Mega Millions ticket in any state is taxable for state purposes, in addition to federal taxes.

What happens if you win a few thousand dollars on a winning PA lottery ticket?

Lottery winnings are included in taxable income. Pennsylvania Lottery winners of an individual prize valued at more than $600 will receive a Form W2-G by mail.

If your spouse also wins, they must report their winnings separately.

“For a significant windfall, like over $5 million, it definitely makes sense to talk to an attorney or accountant to determine if they should take a lump sum payout or annuity. They may also need to think about estate tax planning, financial planning and/or asset protection planning for their windfall,” said Malloy.

Sports betting winnings and taxes

Sports betting winnings are taxable income.

The IRS states:

“Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.”

Even though sports betting isn’t specifically listed, it falls under the umbrella of “gambling winnings.”

Wherever your sports betting win occurred – at the OTB, the casino, on a sports betting app – they payer should send Form W-2G.

Sports betting losses might also be used as deductions if you itemize your deductions and keep a detailed record of wins and losses.

Based on your tax bracket, sports bettors in Pennsylvania could owe up to 35 % of winnings to the federal government in addition to the 3.07 % Pennsylvania taxes net gambling winnings.

Online gambling and taxes

Sports betting apps and online casinos provide unmatched convenience. You may also enjoy the anonymity of playing behind a screen name instead of in person. However, it still comes with the same tax responsibilities. Online gambling winnings are considered taxable income at the same rate as other gambling winnings.

For online gambling winnings, the payer is required to send Form W2G only if the winner reaches the following thresholds:

• The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine
• The winnings (reduced by the wager) are $1,500 or more from a keno game
• The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament
• The winnings (except winnings from bingo, slot machines, keno, and poker tournaments), reduced by the wager, are:
  • $600 or more, and
  • At least 300 times the amount of the wager
• The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding)

In terms of deductions for taxes, players can request a report from online casinos detailing wins and losses.

Can You Net Gambling Wins With Gambling Losses on Your Tax Return?

Taxpayers who gamble casually (meaning they do not qualify as being professional gamblers under the tax code) can net wins and losses within a single session of gambling, but not from different days. The total of multi-session wins would be reportable as “other income” on Form 1040 but the total of multi-session losses would be reported on Schedule A under “Other Itemized Deductions,” up to the amount of your winnings.

Because casinos report larger winnings to the IRS on Form W-2G, failing to use this method may cause the IRS to see a discrepancy and trigger an audit. The general IRS advice on this topic can be found on the IRS’s website (click here).

The netting ofwins and losses is addressed by the Tax Court in Shollenberger v.Commissioner, T.C. Memo. 2009-306 (2009), where the court followed IRSguidance in stating:

A key question in interpreting §165(d) is the significance of the term “transactions.” The statute refers to gains and losses in terms of wagering transactions. Some would contend that transaction means every single play in a game of chance or every wager made. Under that reading, a taxpayer would have to calculate the gain or loss on every transaction separately and treat every play or wager as a taxable event. The gambler would also have to trace and recompute the basis through all transactions to calculate the result of each play or wager. Courts considering that reading have found it unduly burdensome and unreasonable. See Green v. Commissioner, 66 T.C. 538 (1976); Szkirscak [sic] v. Commissioner, T.C. Memo. 1980-129. Moreover, the statute uses the plural term “transactions” implying that gain or loss may be calculated over a series of separate plays or wagers.

What Form Do I Use To Report Gambling Losses Against

The better view is that a casual gambler, such as the taxpayer who plays the slot machines, recognizes a wagering gain or loss at the time she redeems her tokens. We think that the fluctuating wins and losses left in play are not accessions to wealth until the taxpayer redeems her tokens and can definitively calculate the amount above or below basis (the wager) realized. See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). For example, a casual gambler who enters a casino with $100 and redeems his or her tokens for $300 after playing the slot machines has a wagering gain of $200 ($300-$100). This is true even though the taxpayer may have had $1,000 in winning spins and $700 in losing spins during the course of play. Likewise, a casual gambler who enters a casino with $100 and loses the entire amount after playing the slot machines has a wagering loss of $100, even though the casual gambler may have had winning spins of $1,000 and losing spins of $1,100 during the course of play. [Fn. ref. omitted.]

What Form Do I Use To Report Gambling Losses Tax

Thus, the net win from the session as a whole (e.g., when the taxpayer actually cashes out for the day) would be reported under “other income” while the net loss from another day’s session would belong on Schedule A.

Fortunately, those who use casinos’ player cards often can get a statement from the casino breaking down daily wins and daily losses. Some casinos, however, decline to provide this level of detail to their own customers despite having such records. Instead, those casinos will provide only an annual net win or loss statement. As this may cause problems in an IRS audit if the auditor is a stickler for technicalities, a taxpayer may prefer to patronize casinos which provide the additional detail as a higher-level of customer service.

The author of this post is Daniel W. Layton, a former IRS trial attorney and ex-federal prosecutor in the Tax Division of the Los Angeles U.S. Attorney’s Office. He is a tax attorney representing private clients in Newport Beach and Fullerton, Orange County, California.

What Form Do I Use To Report Gambling Losses Winnings

Posted on 12/11/2019 by Daniel Layton.