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Winning Big Online? Here’s What You Need to Know About Paying Taxes


— February 3, 2025

Many tax preparation software solutions include features designed for gamblers, simplifying the process of reporting winnings, deducting losses, and filing state-specific returns.


The surge in online gambling has brought unprecedented convenience to bettors, but it also introduces a crucial responsibility: navigating the tax implications of your winnings. Under U.S. tax law, all gambling winnings—whether from sports betting, poker, or online casino games—are considered taxable income and must be reported to the IRS. 

Gambling Winnings: The IRS’s View 

The IRS considers all gambling winnings taxable income, whether derived from a single bet or a series of wagers. This encompasses winnings from lotteries, raffles, online slots, table games, and sports betting platforms. 

Non-cash prizes, such as vehicles or trips, are also taxable, with their fair market value treated as income. For instance, a $10,000 poker win or a $2,000 sports betting profit must be declared on your tax return, regardless of whether the winnings are paid in cash or bonuses.

The Role of Form W-2G in Reporting 

Online gambling platforms and casinos are obligated to issue Form W-2G when winnings surpass specified thresholds. For example:

  • Slot or bingo winnings: $1,200 or more.
  • Poker tournament winnings: $5,000 or more.
  • Keno winnings: $1,500 or more.

Form W-2G details the amount won and any federal taxes withheld, serving as a critical document for accurate tax filing.

Even if your winnings fall below the thresholds requiring a W-2G, you are legally obligated to report them. This responsibility extends to all gambling income, emphasizing the importance of maintaining comprehensive records of your activities.

Federal Tax Withholding on Gambling Winnings 

Platforms automatically withhold 24% of winnings for federal taxes when the payout exceeds $5,000, provided it is at least 300 times the original wager. For instance, a $20 bet yielding a $10,000 win will result in $2,400 being withheld upfront.

In cases where taxes are not withheld, the onus falls on you to pay estimated taxes. Failure to do so may result in penalties and interest. Self-employed individuals, in particular, should remain vigilant about their quarterly estimated tax obligations.

Maintaining Detailed Records: Your Best Defense 

Accurate record-keeping is essential for tax compliance. Maintain logs of your gambling activities, including the date, type of game, amounts wagered, winnings, and losses. Records can include bank statements, tickets, and digital screenshots. These details are invaluable in substantiating claims if the IRS requests documentation.

Losses can be deducted to offset taxable winnings, but only if itemized on Schedule A of your tax return. For example, if you won $15,000 but lost $6,000, you can reduce your taxable income by the losses, provided you have thorough documentation.

Navigating State Tax Obligations 

State tax laws vary widely. For instance:

  • New York taxes gambling winnings at progressive rates up to 10.9%.
  • States like Florida and Nevada impose no state income tax on gambling earnings.

Understanding your state’s specific requirements is crucial, particularly if you gamble across state lines or live in a state with unique rules.

Poker chips; photo by Jamie Adams, CC BY-SA 2.0, via Wikimedia Commons, no changes.
Poker chips; photo by Jamie Adams, CC BY-SA 2.0, via Wikimedia Commons, no changes.OLYMPUS DIGITAL CAMERA

Failure to comply with state tax laws can result in significant penalties. Consult with a professional familiar with your state’s tax codes to ensure you meet all filing requirements.

Online Gambling Boom and Tax Implications 

The online gambling boom has surged in recent years, with an increasing number of people enjoying the convenience of placing bets directly from their phones or computers. To tap into this growing market, sportsbooks are rolling out enticing promos and bonuses to attract new users. 

North Carolina, the most recent state to join the online gambling wave, is now embracing this trend, offering residents exciting opportunities to participate. You can find more details about these offers and how to get started here. 

Modern platforms often provide account statements that track wins and losses, simplifying your record-keeping process. Leverage these tools to ensure accuracy and compliance.

Common Pitfalls in Tax Reporting 

Underreporting gambling income is a serious offense that can lead to audits, penalties, and 

interest charges. Ensure that all winnings, regardless of size or source, are accurately reported on your federal and state tax returns.

Losses are deductible, but only up to the amount of reported winnings. Overstating losses or failing to itemize deductions can trigger scrutiny from the IRS.

Filing Strategies for Gambling Taxes 

Given the complexities of gambling tax laws, consulting a professional ensures accuracy and compliance while identifying potential deductions. They can also assist with navigating state-specific regulations.

Many tax preparation software solutions include features designed for gamblers, simplifying the process of reporting winnings, deducting losses, and filing state-specific returns.

By understanding and adhering to these requirements, you can confidently manage the tax obligations associated with your gambling winnings while minimizing risk and maximizing compliance. Should you have further questions or need assistance, consult a tax professional to tailor strategies to your unique circumstances.

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