Do I Need to Pay Tax on My Gambling Winnings?

You’ve beaten bad luck and won some money playing casino games online. You’re already thinking about what you’re going to spend the money on when the word “tax” creeps into your mind.

Do you have to pay US tax on gambling winnings? I’ve got the answer. So, before you start spending, here’s everything you need to know about US gambling tax.

Are Gambling Winnings Taxable?

In the same unfortunate way that no one lives forever, US gambling taxes are a certainty. Gambling taxes aren’t a certainty in every country. For example, the UK doesn’t impose a state levy on casino, poker, bingo, or sports betting wins.

In the US, however, there is a tax to pay on money gained from gambling. As it often is with financial matters, the way you report gambling winnings for taxes depends on your employment status.

However, the key takeaway here is that you must report gambling winnings on your annual tax returns, even if the levy has been taken at the point of issue.

I’ll talk about cases where US gambling taxes are taken at the point of issue in a moment. For now, I want you to turn this into a mantra you repeat to yourself ahead of tax season: You must report gambling winnings on your annual return.

Can You Deduct Gambling Losses?

You can deduct losses on your tax return, but there are two important caveats:

1. Your total deduction can’t exceed your total winnings. For example, if you won $2,000 but lost $4,000 over the course of the year, you can’t deduct the full amount. Instead, you can only deduct an amount equal to your total winnings. So, in this example, you could only deduct $2,000.

2. You can’t deduct your stake. For example, if you bet $20 on a horse race and make a $200 profit, your total return will be $220 ($200 profit + $20 stake). You can’t deduct the $20 stake and report a win of $200. In this situation, you must report the win as $220.

Any losses you report for US gambling tax purposes must be itemized. Recreational gamblers report losses on Schedule A of their return. Professional gamblers report them on the Schedule C section of their tax return.

Big Beautiful Bill Act Changes

Before the Big Beautiful Bill Act, you could deduct 100% of your losses from your winnings, but starting from Jan. 1, 2025, you'll only be able to deduct 90%. Meaning that even if you break even, you'll still owe the government 10% in phantom taxes. Let's take a look at some examples.

• Example 1: You win $5,000 but lose $4,000. Since you can only deduct 90% of your losses, you can write off $3,600. That leaves $1,400 in taxable income, even though your actual profit was only $1,000.

• Example 2: You win $5,000 but also lose $5,000. The same rule applies here. You can deduct 90% of your $5,000 loss, which is $4,500. That means you still owe tax on $500, even though you broke even.

This new taxing system cuts directly into player profits and could push some gamblers toward offshore casinos where these tax rules don’t apply.

Still, not all hope is lost. Nevada U.S. Representative Dina Titus has introduced the FAIR Act, which could completely eliminate the 90% deduction cap and restore full deductibility of gambling losses.

How to Report Gambling Winnings

You need a Form 1040 to report and calculate US tax on gambling winnings. Recreational gamblers (i.e., someone who doesn’t earn a full-time living from gambling) must report their winnings on Schedule A of their tax return.

This applies in all cases, regardless of whether tax has been paid already or not. Cases where tax has already been paid involve a form known as W-2G.

These cases are when gambling operators collect tax at the point where winnings over a certain amount are issued (i.e., paid). The threshold depends on the type of gambling you’re doing.

Operators don’t issue W-2G forms for table games such as blackjack and roulette. They do, however, issue a W-2G in the following situations:

• You win over $600 from a horse racing bet when the return is 300x or more than your original stake. 

• You win over $1,200 from a slot machine or a game of bingo.

• You win over $1,500 from a game of keno.

• You win over $5,000 from a poker tournament, sweepstakes gaming, wagering pools, and lotteries.

When the above thresholds are breached, operators deduct 24% from your winnings to cover your tax liability and issue a W-2G. The information presented on the W-2G must be entered into your annual tax return.

Taxes for Professional Gamblers

Professionals are also subject to US tax on gambling winnings. However, the reporting requirements are different.

Before I explain how to report gambling winnings as a professional, let’s first define what a professional is in the eyes of the law.

Am I a Professional Gambler?

The now-infamous Groetzinger case heard by the Supreme Court in 1987 set the foundation for how US authorities define a professional gambler. If you don’t have time to read through the case, the IRS has a nine-point checklist you can use.

You’re not necessarily classified as a professional gambler if you answer yes to any single question. However, if your activities mainly fall within the framework defined by the following nine points, you may be considered a professional gambler by the IRS.

Here are the nine points to consider. If you answer yes to the majority of them, you might be considered a professional gambler for tax purposes:

1. Do you gamble in a businesslike manner and maintain accurate records of your results?

2. Do you have “personal motives” for gambling, such as to make a profit?

3. Do you put in a sufficient amount of time and effort to gain an edge in your chosen activity so you can make a profit?

4. Do you depend on income from gambling to cover your living expenses?

5. Are losses due to circumstances beyond your control and/or considered a normal part of the activity?

6.  Do you have the knowledge needed to gamble for a living?

7. Have you successfully made a profit from similar activities in the past?

8.  Have you made a profit from gambling over the years, and, if so, how much?

9. Can you expect to make a profit in the future from gambling?

If you’re considered a professional gambler based on the above criteria, you need to complete Schedule C of your tax return because you’re classed as a self-employed individual.

Your business, in this case, is gambling. As before, you’re required to report all wins and losses. Additionally, the losses reported can’t exceed the sum total of your wins.

Reporting Deductions as a Professional Gambler

Something professionals can do that recreational gamblers can’t is deduct additional expenses. These expenses can help reduce the amount of US gambling tax you need to pay.

There isn’t a definitive list of allowable expenses. The guiding principle you should follow is that expenses are wholly necessary and solely for the purpose of your business.

Some possible expenses you can list when it comes to US tax on gambling winnings are:

• Internet charges if you only use your connection to play online casino games.

• Subscription costs for training materials and coaching websites.

• Travel expenses, including flights, accommodation, and food, while attending events such as poker tournaments.

Legitimate expenses can reduce the amount of US gambling tax you pay, but they can only be claimed if you’re classed as a professional. That’s why it’s a +EV move to employ a tax expert if you’re a professional gambler.