Gambling is something that many people enjoy doing either on a regular basis or now and again. Of course, gambling is a much more enjoyable pastime when you are winning rather than losing! However, if you are one of the lucky ones on a winning streak you need to bear in mind that you’re probably going to have to give a slice of your good luck to the IRS, as it will be classed as taxable income.
In many cases, if you have been lucky enough to win a big jackpot the payer will actually deduct taxes from your winning upfront and the information will be issues to you via the W-2G form. The amount of money that you have won, and the type of gambling that you won it on, will determine whether the payer gets involved in taking your details and withholding part of your winnings for the taxman.
When you have bagged larger sums of money by way of winnings the payer will need to take your social security number to let the IRS know that you have come into some additional ‘income’. In some cases they will take the 25 percent tax from your winnings before you get your money. If you do not provide your social security details the payer could withhold as large an amount as 28 % of the winnings, so it is advisable to cooperate and furnish the casino with the necessary information.
Of course, you may only have won a small amount with your gambling, which will not warrant the payer to take your details and inform the IRS. However, in order to ensure that you are paying your taxes by the book you will still need to declare these winnings. Both big jackpots and smaller winnings can be reported under the ‘other income’ section of Form 1040. You can also supply details here of any taxes that were paid upfront on your winnings through deductions made by the payer, which will be detailed on the W-2G form.
The good news is that whilst you have to pay tax on your gambling winnings you are also able to deduct tax on your losses. So, unless you struck really lucky and scored a big jackpot with your very first bet you can recoup some or even all of the money that you pay on taxes on your winnings based on how much you lost on your gambling.
Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to mortgage loans.
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