How to Deal With Taxes From Gambling Winnings

A big gambling win can also lead to a significant tax bill. You may have a federal or state tax liability when you report gambling income from a W-2G on your tax return. Or, if you do not report your gambling winnings, the IRS will send you a notice or adjust your tax return to reflect the unreported income. 

This post outlines how gambling income is taxed, the forms you may receive if you win, how to reduce your taxable income by claiming losses, and what to do if you have an unexpected tax liability due to gambling winnings. The majority of the post addresses amateur gambling winnings, but there is also a brief section on the rules for professional gamblers.

Key takeaways

• Reporting requirements - You must report gambling winnings on your tax return.
• Losses - You can reduce the income by gambling losses if you itemize.
• Withholding - If you win over a certain threshold, the payer will issue a tax form and withhold tax.
• Failure to report - If you don't report your winnings, the IRS may adjust your return and assess penalties.
• Payment options - The IRS offers payment plans or settlements to qualifying taxpayers.

Gambling Winnings and IRS Reporting Requirements

The IRS requires you to report all gambling winnings as income, whether you receive a tax document or not. However, the payer will issue you a W-2G if your winnings meet the following criteria:

• $1200 or more from a bingo game or slot machine.
• $1500 minus the wager from a keno game.
• $5000 minus the wager or buy-in from a poker tournament.
• $600 minus the wager on any other game, or winnings of 300 times or more of the wager.

You may receive a W-2G if your winnings are below these thresholds if the payer is required to withhold taxes from the winnings. The payer may need to withhold tax if you don't provide a tax ID number and your winnings meet the above thresholds.

Why were taxes withheld from my gambling winnings?

The IRS requires payers to withhold 24% from winnings of $5,00 or more from sweepstakes, wagering pools, parimutuel pools, jai alai, and lotteries. If you receive over $5,000 from one of these types of contests, you will generally see a withholding of 24%. 

When you report the winnings on your tax return, also note the tax withheld. The withheld tax will go toward your final tax liability, and if too much was withheld, it will go toward your refund. 

What if you win a car or another non-cash prize?

You must report the fair market value of the prize as income on your tax return. If the value exceeds $5,000, the payer must take care of withholding and provide you with a tax document. 

The payer may require you to pay 24% of the prize's value for withholding, or the payer may pay the withholding tax at a rate of 31.58%. In the second scenario, the value of your prize is increased by the amount of withholding paid. 

Here's an example. Say that you win a car worth $60,000. If you are required to pay the withholding, you will pay $14,400. When you receive the tax document, it will show that you received $60,000 in income and paid $14,400 in tax. 

However, if the payer pays the withholding, the tax document will show that you received $78,948 in income but paid $18,948 toward your tax liability. The income is increased by the amount of tax the payer paid on your behalf.

State tax on gambling winnings

You will face state income tax on your winnings unless you live in a state that does not have income tax. Additionally, California does not levy state income tax on winnings from the California Lotteries including SuperLotto, Powerball, and Mega Millions.

State tax on out-of-state gambling winnings

If you win out of state, check that state's rules for reporting requirements. In some cases, you may need to report the income on the state return in the state where you live, but you may also have to file a non-resident return in the state where you won the money. 

For example, Delaware requires non-residents to file a state return to report gambling income earned from sources within Delaware.

What if taxes were withheld from another state

The state where you win may withhold state income tax. If so, you can generally file a state return for the state where you live, and then, claim a credit for the taxes withheld in that other state. 

However, you should double-check the tax code in the state where you won - as noted above, some states require you to file a tax return if you have income sourced from that state.

How to Report Winnings on Your Tax Return

Enter gambling income on line 8b of Schedule 1. Then, on the main 1040 form, report federal taxes withheld on line 25a along with tax withheld from other W2 forms or line 25b if you received a 1099 for your winnings. You will also note the income on your state income tax form as well as the state tax withheld.

If you use tax prep software, the program will simply ask if you received a tax form for gambling winnings. Then, it will ask you questions about the numbers in each box of the form.

If you itemize deductions, you may also write off gambling losses but only losses from the current tax year up to the value of your gambling income. For example, let's say you have a W-2G for $6000 but you spent $7500 making wagers or bets. In this case, you can report $6000 in gambling losses if you itemize. 

Note that the majority of taxpayers do not itemize. To get the full value of itemization, your itemized deductions must be more than the standard deduction ($15,000 for single filers and $30,000 for joint filers as of tax year 2025). Itemized deductions include mortgage interest, state and local taxes up to $10,000, medical expenses over 7.5% of AGI), etc.

Do I need proof of my gambling losses?

If you get audited, you will need to back up your gambling losses with receipts, logbooks, etc. However, you do not need to provide this info to the IRS when you file.

What if I already filed and didn't claim my losses?

You can amend your tax return to claim losses if you did not claim them right away. If the IRS adjusted your return to include your gambling winnings, you may also amend and report your losses. Again, however, you can only report losses if you itemize, and you can only claim up to the amount of your winnings.

Claiming losses on state tax returns.

Connecticut, Illinois, Indiana, Kansas, Massachusetts, Michigan, North Carolina, Ohio, Rhode Island, West Virginia, and Wisconsin do not allow you to claim itemized gambling losses. For example, if you have $30,000 in winnings and $20,000 in itemized losses, you will face federal income tax on $10,000 but if you live in any of these states, you will face state income tax on the full $30,000. 

In contrast, most other states follow the IRS's rules for claiming losses against gambling winnings - ie, if you itemize and claim the losses on your federal tax return, they will just transfer over to your state return. 

Return Adjustments Due to Gambling Winnings

If you do not report your gambling winnings on your tax return, the IRS will send you a notice. The agency may send you a notice saying that they received income documents related to the gambling winnings but they were not reported on your tax return, or the agency may just adjust your return and then send you a notice outlining the changes and the amount due. 

Review the notice carefully to figure out what you need to do. If the IRS has not updated your return, you may need to file an amended return showing the gambling winnings. If the IRS has adjusted your return, make sure that you agree with the changes and that you have gotten credit for any tax withheld. 

If you disagree with the changes, file an amended return or reach out to a tax professional for assistance. If you agree with the changes, make arrangements to pay the tax liability as soon as possible to minimize penalties and interest.

What if the IRS contacts me about my spouse's gambling winnings?

Then, you may want to look into innocent spouse relief. To qualify, you must not have known about the winnings or had any reason to know and you may need to meet other criteria. If you get approved, you will not be liable for the tax due related to your spouse's winnings. 

This scenario may occur if you file a joint return with your spouse or you file separately but live in a community property state. Once the IRS discovers the unreported gambling income, they will send you a notice or adjust your return as explained throughout this post, and then, you will both owe the tax. However, you may be able to get relief by requesting innocent spouse relief.

What if you cannot afford to pay your tax bill from gambling?

If you cannot pay the amount due in full, consider the following payment and relief options:

• Installment agreement - Make monthly payments on your tax debt. The IRS has a number of options - approval tends to be very easy if you owe less than $50,000 and have a history of compliance.
• Offer in compromise - Prove that you cannot afford to pay and ask the IRS to settle for less than you owe.
• Currently not collectible - If you cannot pay anything right due (based on the IRS's standards for essential living expenses), ask the IRS to mark your account as currently not collectible and stop collection actions until your situation improves. 

You should also request penalty abatement - the IRS will generally waive late payment or late filing penalties if you have a history of compliance or if you had reasonable cause for incurring the penalties. Penalty waivers can substantially reduce how much you owe.

What if you ignore a gambling-related tax debt?

Ignoring the situation will lead to interest and penalties. The IRS may try to forcibly secure repayment through wage garnishment, bank account seizure, or taking your assets.

How to Prevent Future Tax Bills From Gambling Winnings

Now that you know what to expect with taxes from gambling, you're probably wondering how to prevent this situation in the future. Keep the following tips in mind:

• Track all of your losses - Although looking at losses may feel depressing, tracking ensures that you're ready to write off expenses if you get a big win.
• Set aside money for taxes - If you win, set aside some of your winnings to cover your tax bill. If you know that your effective tax rate is going to be under 24% and the payer already withheld that amount for you, then, you don't have to worry about withholding. 
• Consider paying quarterly - If you win often, you may need to make quarterly estimated payments. As a general rule of thumb, you don't need to pay quarterly the first year you have extra income, but for following years, you should pay at least 100% of last year's tax or 90% of the current year's tax in quarterly payments if you want to avoid the quarterly estimated tax penalty.

Talk with a tax professional about tax planning strategies if you win often. You may also want to consider if you qualify to report your income as a gambling professional. If so, you qualify to claim additional expenses. 

Tax Rules for Professional Gamblers

If you gamble professionally, the above rules do not apply to you. Instead, you report gambling winnings as self-employment income on Schedule C and then you may deduct losses and expenses on that form as well. The IRS does not allow professional gamblers to claim a net loss, but it does allow you to claim travel expenses and similar costs incurred in the pursuit of earning gambling income. 

You may qualify as a professional if you gamble to produce income, not merely as a hobby. The rules are a bit subjective, but when determining if you're a pro or amateur, consider the following:

• How you carry on the activity
• Your expertise
• Time and effort devoted to the activity
• The expectation of relying on your gambling income for survival
• Your financial status.

If you report gambling winnings as if you are a professional and the IRS believes that you are an amateur, the agency may disallow your expenses under the hobby-loss rules. 

When to Contact a Tax Professional

Consider reaching out to a tax professional if any of the following apply:

• You aren't sure if you qualify as a professional or not.
• You want help claiming gambling losses.
• You owe a large tax liability and need help making payment arrangements.
• The IRS has adjusted your return and you disagree. 
• The IRS has adjusted your return and you need help setting up payments.
• The IRS has audited your return and disallowed gambling losses. 
• The IRS has audited your return and assessed tax due to gambling winnings. 

A tax professional can give you peace of mind by listening to your concerns and helping you deal with the IRS. Most start with a free consultation which helps you get a good idea of how they can help you.

Frequently Asked Questions

What gambling winnings are taxable?

The IRS taxes all gambling winnings. States with income tax also tax gambling winnings, but there are a few exceptions.

Can I deduct all my losses if I gambled throughout the year?

You can deduct losses up to the amount of the winnings if you itemize deductions.

What happens if I don’t report gambling income?

If you don't report gambling income and the payer sends a form to the IRS, the IRS will notify you about the unreported income. The IRS may also adjust your tax return and assess a tax liability against you.

How do I prove gambling losses to the IRS?

If selected for an audit, you can prove your losses through receipts or other documents that show gambling expenses. You do not have to prove losses if you are not under audit.

Are professional gamblers taxed differently?

Yes, professional gamblers are taxed differently than amateurs. Amateurs must report all winnings and can only claim losses if they itemize. Professionals, in contrast, must report all winnings, but they can deduct losses even if they don't itemize. Professionals can also claim other ordinary expenses incurred while gambling.

To get help now, use TaxCure to find a tax pro. Utilize the search feature to narrow down the results based on your unique concern. Although gambling winnings are not a filter on this site, you can filter by unpaid taxes, unreported income, audits, or whichever exact issue you're facing.