Gambling winnings are taxed as ordinary income by the federal government, and the tax rate depends on your total income for the year

The federal tax rate on gambling winnings is not a single flat percentage. Instead, your winnings are added to your other income and taxed using the standard income tax brackets that explore to everyone. If you won $5,000 at a casino, that $5,000 gets added to your wages, investment income, and any other money you earned, and the combined total determines your tax bracket.

The federal government requires casinos, racetracks, and online gambling sites to report winnings to the IRS on Form W-2G when certain thresholds are met. For most gambling, that threshold is $600 or more in winnings. Slot machines, keno, and bingo have different reporting rules than table games and sports betting, but all are taxed as income once reported.

State and local taxes on gambling vary widely. Some states tax gambling winnings at a separate rate, some tax them as regular income, and some do not tax them at all. A few states have no income tax at all, which affects how much you owe overall.

Key Takeaways

  • Federal gambling winnings are taxed as ordinary income using your regular tax bracket, not at a flat rate.
  • Casinos and online sites must report winnings of $600 or more to the IRS on Form W-2G.
  • You owe taxes on gambling winnings whether or not the casino reports them, and the IRS can cross-reference reports.
  • State tax rates on gambling winnings range from 0% to over 8%, depending on where you live and where you won the money.
  • You can deduct gambling losses on your federal return, but only if you itemize deductions and only up to the amount of your winnings.

How the federal tax brackets work with gambling income

Your gambling winnings are stacked on top of your other income for the year. If you earned $50,000 in wages and won $10,000 gambling, the IRS treats you as having $60,000 in income. That $60,000 is then taxed according to the 2024 federal brackets, which range from 10% at the lowest bracket to 37% at the highest.

This means the tax rate on your winnings depends on how much money you already earned. If you are in the 22% bracket before the win, your winnings may push you into the 24% bracket. The marginal rate — the rate on your last dollar of income — is what applies to the winnings themselves.

The IRS does not separate gambling income from other income when calculating your tax. It all goes into one pot. This is different from some other countries, which tax gambling at a flat rate regardless of total income.

Reporting requirements and Form W-2G

When you win $600 or more at a casino, racetrack, or bingo hall, the venue is required to issue you a Form W-2G and file a copy with the IRS. For slot machines and keno, the threshold is $1,200. For table games like blackjack or poker, the threshold is also $600. For sports betting and lotteries, the rules vary by state and the type of bet.

You will receive Copy B of the W-2G, which shows the amount of your winnings and any federal tax withheld. The casino or site will also report it to the IRS. You must include this income on your tax return, even if you did not receive a W-2G — for example, if you won $500 at a poker game or $400 from an online sportsbook, neither of which triggers the reporting threshold.

The IRS cross-references W-2G forms with tax returns. If a form shows you won $5,000 but you did not report it on your return, the IRS will notice. Failing to report gambling income can result in penalties and interest on the unpaid tax.

State and local gambling taxes

State tax treatment of gambling winnings varies significantly. Some states, like Nevada and Wyoming, have no state income tax, so you owe only federal tax on winnings. Other states tax gambling winnings as regular income using their standard income tax rates, which range from about 3% to over 13% depending on the state and your income level.

A few states impose a separate tax on gambling winnings in addition to income tax. For example, some states tax casino winnings at a flat rate of 6% to 8% on top of regular income tax. New Jersey taxes casino winnings at 1.25% to 8% depending on the amount won. Illinois taxes riverboat casino winnings at a flat 15%.

Where you won the money also matters. If you live in one state but won money at a casino in another state, you may owe tax to both states. The state where the casino is located usually taxes the winnings first, and your home state may allow a credit for taxes paid to the other state to avoid double taxation.

Withholding and estimated taxes

Casinos and online gambling sites are required to withhold federal income tax from large winnings. The standard withholding rate is 24% for most gambling winnings reported on W-2G forms. This means if you win $5,000, the casino will withhold $1,200 and give you $3,800 in cash or a check.

The 24% withholding is not necessarily the final amount you will owe. If your total income for the year puts you in a higher tax bracket, you may owe more when you file your return. If you are in a lower bracket, you may get a refund of the excess withheld.

If you have significant gambling winnings and expect to owe more than $1,000 in taxes for the year, you may need to make estimated tax payments to the IRS quarterly. This applies if you are self-employed or have other income sources that do not have withholding. Failing to make estimated payments can result in penalties.

Deducting gambling losses

You can deduct gambling losses on your federal tax return, but only under specific conditions. First, you must itemize deductions on Schedule A instead of taking the standard deduction. Second, you can only deduct losses up to the amount of your gambling winnings for the year. If you won $5,000 and lost $8,000, you can only deduct $5,000 in losses.

To claim losses, you need records: tickets, receipts, statements from casinos or online sites, and a diary of your gambling activity with dates, locations, and amounts. The IRS takes gambling loss deductions seriously and will ask for documentation if you claim them.

Many people find that itemizing deductions is not worth the effort unless they have other large deductions like mortgage interest or charitable donations. The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly, so you need substantial deductions to benefit from itemizing.

Gambling income from online sites and sports betting

Online casinos, poker sites, and sportsbooks are required to report winnings to the IRS just like physical casinos. The reporting thresholds and withholding rules are the same. If you win $600 or more on DraftKings, FanDuel, or another licensed sportsbook, you will receive a Form W-2G.

Some states have specific rules for online gambling. New York, for example, taxes online sports betting winnings at 8.75% in addition to federal tax. Other states treat online winnings the same as casino winnings. A few states do not allow online gambling at all, so winnings from unlicensed sites may not be reported to the IRS, but you are still legally required to report them on your federal return.

If you use a VPN or access gambling sites from outside the United States, you are still required to report any winnings to the IRS. The fact that a site is offshore does not exempt you from U.S. tax law.

Frequently Asked Questions

Do I have to pay taxes on gambling winnings if the casino did not give me a W-2G?

Yes. You are required to report all gambling winnings on your federal tax return, regardless of whether you received a W-2G. The W-2G is just documentation that the IRS also has on file. Winnings under $600 do not trigger a W-2G, but you still owe tax on them.

Can I deduct my gambling losses if I won more than I lost?

You can deduct losses, but only up to the amount of your winnings. If you won $3,000 and lost $5,000, you can deduct only $3,000 in losses. You cannot use the extra $2,000 in losses to offset other income. You must also itemize deductions to claim losses at all.

What happens if I do not report gambling winnings?

The IRS will likely find out through W-2G forms filed by casinos and online sites. Unreported income can result in penalties of 20% or more of the unpaid tax, plus interest. In cases of fraud, criminal charges are possible, though they are rare for gambling income alone.

Do I owe taxes on gambling winnings if I live in a state with no income tax?

You owe federal tax no matter where you live. You will not owe state income tax if your state has no income tax, but you still owe the federal rate. If you won the money in a state that does tax gambling, you may owe that state's tax as well.

Is the 24% withholding the final amount I will owe in taxes?

Not necessarily. The 24% withholding is a federal requirement, but your actual tax liability depends on your total income for the year. If you are in a higher bracket, you may owe more. If you are in a lower bracket or have deductions, you may get a refund of the excess withheld.