The most sizable land-based jackpot paid out on US soil is a prize worth $39.7 million produced by a Megabucks slot machine on the gaming floor of the Excalibur hotel and casino in Las Vegas in 2003. Thus, it is clear why many people flock to gambling spots each year to test their luck on games of chance, as, without a doubt, casino-style gaming can change people’s lives. However, what many lay gamblers are not aware of is the fact that jackpot rewards never get paid out all at once. But in monthly/yearly installments. Moreover, laws mandate that the government take a chunk of their winnings as all gaming income is taxable.
Players are the ones that must inform state and local tax authorities concerning any accumulated earnings during a financial year. For income attained in a casino, gamblers should receive a W-2G document from the gaming operators, inside whose floors they have enjoyed a run of good luck. Though, keep in mind that, legally, these venues have no obligation to issue such a form if the jackpot winnings do not go over $1,200. For keno, this limit may go up to $1,500 in some territories, and for poker, it is often $5,000 or more.
Essentially, income from forms of gambling that need to be reported to authorities includes one stemming from any casino game, sports betting, poker, and lotteries. However, in most states, winnings from state-run or charitable bingo and keno games may not get subject to tax withholding if specific circumstances get met. In such cases, the winning player may only get asked to provide a social security number to avoid a tax withholding.
General USA Gambling Tax Tips
In general, gambling winnings in the US are subject to a flat tax of 24%. Nevertheless, different states may tax gambling winnings using various rates. Some have flat ones, while others incorporate more complicated rules. For example, if a player wins a non-monetary reward, like a car or apartment, then that person in distinct territories may get asked to pay taxes on that item’s/property’s fair market value. That gets assessed by a revenue authority.
That said, gamblers can also deduct their gambling losses if they itemize their deductions. They must add them on Schedule A of Form 1040 (the annual income tax return form), line sixteen, as a miscellaneous deduction in the Other Itemized Deductions category. These do not get subjected to a 2% limit. That means that gamblers can deduct all their losses up to the sum of their winnings. Not just the sum of over 2% of their adjusted gross earnings. Net gambling winnings never get reported, only gross ones. Some taxpayers claim that the Tax Cut and Jobs Act of 2018 has reduced their itemized deductions eligibility, removing the need for the Schedule A section.
It is vital to note that professional gamblers get treated differently by the letter of the law because they get seen as individuals engaging in a business. Hence, they must file their earnings on the Schedule C section of the 1040 form. Professional players are individuals that pursue gaming with a great deal of regularity as a for-profit activity, and they keep account of their winnings and losses. Anyone can legally declare themselves a professional gambler. Yet, when they do so, they get subjected to self-employment tax.
The penalties associated with withholding tax on gambling winnings are the same as those for withholding any other form of income. Usually, these penalties come in the form of underpayment fines. These start at around 0.5% of the underpaid amount, capped at 25%. They can also accrue annual interest. If they do not get paid on time, authorities will explore incarceration.
How Do Gambling Tax Revenues Get Used?
Again, this varies from state to state. As a rule of thumb, most US territories funnel the funds gathered from gambling taxes to various youth programs. Diverting this money to improve local infrastructure and helping charitable organizations is another avenue many governments choose.
Recently, Ohio legalized sports gambling, becoming the 33rd US state to accomplish this feat. One of the bill’s co-sponsors that made this happen, state representative Adam Miller proclaimed that the tens of millions of novel dollars should get poured into the state’s treasury each year. These will dramatically benefit multiple Ohio education and veteran groups.
For decades, most US states have used their gaming and lottery revenues to fund public services and programs. Mainly those connected to economic development and education, while also setting aside a portion of gaming revenue to help combat the hazardous effects of this pastime by financing anti-gambling treatment centers and organizations that help those suffering from a compulsion towards betting.
For more gambling news and reviews, visit OUSC.
