Gambling and Lottery Winnings Class of Income. Gambling and lottery winnings is a separate class of income under Pennsylvania personal income tax law. Between July 21, 1983 and Dec. 31, 2015, all prizes of the Pennsylvania Lottery were excluded from this class of income.
After the thrill of collecting gambling winnings, comes questions about taxes.
Yes, gambling income, which includes winnings from slots, table games, horse racing, sports betting, lottery games, jackpots, and the like, is considered taxable income. As such, you are required to report them on your tax return. The car, boat, or Harley Davidson and other noncash prizes also need to be reported.
There are plenty of questions surrounding Pennsylvania taxes and gambling winnings. Now there are even more with the advent of sports betting, betting apps, and online casinos in Pennsylvania.
Here are some answers.
How much are my gambling winnings taxed?
Casinos withhold 25% of winnings for those who provide a Social Security number. If you do not provide your Social Security number, the payer may withhold 28%.
Currently, Pennsylvania’s personal income tax is a flat tax rate of 3.07% which applies to all taxable income, including gambling and lottery winnings. PA has the lowest rate of all states with a flat tax.
The new regular withholding rate
Effective for taxable years beginning after December 31, 2017, the withholding rate under Section 3402(q) applicable to winnings of $5,000 or more from sweepstakes, wagering pools, certain parimutuel pools, jai alai, and lotteries (formerly 25%) is 24%.
Federal Form W-2G, Certain Gambling Winnings
The organization that pays the winnings, in most cases, the casino, is responsible for sending the recipient of the winnings Form W-2G, Certain Gambling Winnings.
Form W-2G reports the amount of winnings to you as well as to the IRS.
The payer is required to send Form W2G only if the winner reaches the following thresholds:
- The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine
- The winnings (reduced by the wager) are $1,500 or more from a keno game
- The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament
- The winnings (except winnings from bingo, slot machines, keno, and poker tournaments), reduced by the wager, are:
- $600 or more, and
- At least 300 times the amount of the wager
- The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding)
How to report PA gambling winnings on taxes
According to the IRS, you must report the full amount of your gambling winnings each year on your federal taxes. First, you report gambling winnings as
You may receive a Form W-2G showing the amount of your gambling winnings and any tax withheld. Include the amount from box 1 as “Other Income” on Form 1040, Schedule 1 (PDF).
That number then goes on your U.S. Individual Income Tax ReturnForm 1040 (PDF), line 7a (designated “Other Income”). You should attach the Schedule 1 form to your Form 1040.
Include the amount shown in box 2 on the W-2G on line 17 (designated as federal income tax withheld) of your Income Tax Return (Form 1040).
Pennsylvania state taxes for gambling
In addition to federal taxes payable to the IRS, Pennsylvania levies a 3.07% tax on gambling income.
You should report your Pennsylvania taxable winnings on PA-40 Schedule T (PDF). Include the total winnings from line 6 of Schedule T on your Pennsylvania Income Tax ReturnPA-40 (PDF), line 8 (“Gambling and Lottery Winnings”).
If your gambling winnings come during a trip to another state or country, you are still required to report.
Michelle Malloy, Esq. at AUA Capital Management, LLC in Conshohocken, Pennsylvania, commented:
“Pennsylvania takes the position that they are entitled to tax a portion of your worldwide income based on certain income items (wages, interests, dividends, capital gains, gambling winnings, lottery winnings, etc).”
What if I don’t receive a Form W2-G?
If you did not receive Form W-2G, your winnings are still considered taxable income and should be reported. A payer is required to issue you a Form W-2G if you receive certain gambling winnings or have any gambling winnings subject to federal income tax withholding.
According to Malloy:
“You are required to report all gambling winnings for federal and Pennsylvania taxes. If you hit a certain threshold they (the casino) will withhold money. In the instance where a casino doesn’t do their job and and fails to send you a W2-G you are still required to report your winnings, or you run the risk of underreporting your taxable income for the year.”
Do I have to pay taxes if a group of people win the lottery?
What happens when a group of coworkers chip in on a lottery ticket that wins? What about you and a friend who put money on a long-shot team to win the championship?
Meet Form 5754 (PDF). Payers use this form to prepare Form W-2G when the person receiving gambling winnings subject to reporting or withholding is not the actual winner or is a member of a group of two or more people sharing the winnings.
Don’t send Form 5754 to the IRS. Keep a copy for your records and return the form to the payer (usually the casino) for preparation of Form W-2G for each person listed as winners.
Are there any deductions available for taxes related to gambling?
Gambling losses can be deducted. However, they must be itemized on line 28 of Schedule A, Form 1040.
Also, you cannot deduct more than your winnings.
Expenses related to any gambling or lottery activities, (like your dinner at the steakhouse, celebratory drinks from the bar, or cost of hotel room) cannot be deducted.
If you are going to deduct gambling losses, keep these records:
- The date and type of each wager
- The name and location of the bet
- The amount won or lost
- Wagering tickets
- Canceled checks
- Credit card records
When using a players club/members card, casinos can track players’ spend. Therefore, you can request a win/loss report that will give you a fairly good sense of your activity in a casino. Online casino players can request the same report and most sites should be able to provide it without issue.
“A lot of people may under-report,” explained Malloy. “They might win $10,000 but have $3,000 of expenses so they think they are just going to report $7,000. That can be an issue, as Pennsylvania does not allow a deduction for expenses. If you win a lot of money in June, for example, you might want to make an estimated tax payment [due Sept. 15 and Jan. 15] so you don’t have an underpayment penalty the following April.”
How to claim gambling winnings and/or losses
Pennsylvania provides a helpful resource to determine how to claim gambling winnings and/or losses.
There is a prompt where you can start a ten-minute interview.
Be sure to have the following information ready:
Oklahoma Tax On Casino Winnings
- Your and your spouse’s filing status
- Amount of your gambling winnings and losses
- Any information provided to you on a Form W-2G
Taxes on multistate lotteries
The Pennsylvania Department of Revenue considers multi-state lottery prizes, like those from Powerball and Mega Millions, awarded on tickets purchased through a licensed Pennsylvania state lottery ticket vendor, a prize by the Pennsylvania Lottery.
“Such prizes are considered Pennsylvania source income and both residents and nonresidents are subject to tax on such income if the prize is a cash prize. Multistate lottery prizes awarded on tickets purchased through a vendor in another state lottery are considered prizes awarded by that state lottery. Such prizes are not considered Pennsylvania source income and only residents are taxed on such income regardless of whether the prize is a cash or noncash prize.”
Due to a 2016 law change, any cash prize won from a Powerball of Mega Millions ticket in any state is taxable for state purposes, in addition to federal taxes.
What happens if you win a few thousand dollars on a winning PA lottery ticket?
Lottery winnings are included in taxable income. Pennsylvania Lottery winners of an individual prize valued at more than $600 will receive a Form W2-G by mail.
Casino Winnings Tax Reporting
If your spouse also wins, they must report their winnings separately.
“For a significant windfall, like over $5 million, it definitely makes sense to talk to an attorney or accountant to determine if they should take a lump sum payout or annuity. They may also need to think about estate tax planning, financial planning and/or asset protection planning for their windfall,” said Malloy.
Sports betting winnings and taxes
Sports betting winnings are taxable income.
The IRS states:
“Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.”
Even though sports betting isn’t specifically listed, it falls under the umbrella of “gambling winnings.”
Wherever your sports betting win occurred – at the OTB, the casino, on a sports betting app – they payer should send Form W-2G.
Sports betting losses might also be used as deductions if you itemize your deductions and keep a detailed record of wins and losses.
Based on your tax bracket, sports bettors in Pennsylvania could owe up to 35 % of winnings to the federal government in addition to the 3.07 % Pennsylvania taxes net gambling winnings.
Online gambling and taxes
Sports betting apps and online casinos provide unmatched convenience. You may also enjoy the anonymity of playing behind a screen name instead of in person. However, it still comes with the same tax responsibilities. Online gambling winnings are considered taxable income at the same rate as other gambling winnings.
For online gambling winnings, the payer is required to send Form W2G only if the winner reaches the following thresholds:
- The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine
- The winnings (reduced by the wager) are $1,500 or more from a keno game
- The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament
- The winnings (except winnings from bingo, slot machines, keno, and poker tournaments), reduced by the wager, are:
- $600 or more, and
- At least 300 times the amount of the wager
- The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding)
In terms of deductions for taxes, players can request a report from online casinos detailing wins and losses.
Gambling In America
If you've ever won a jackpot in Las Vegas, you probably know that your excitement diminishes at least a little when the casino throws a W-2G tax form in your face. In fact, if you don’t provide your social security number, the casino will automatically withhold up to 30% of your winnings. The same goes for lottery and horse racing wins above $1200. Yet when playing online, paying taxes isn’t always so black and white.
Americans who play at US-based online casinos will usually have to deal with withholding taxes just like in Las Vegas. Yet that only represents a small fraction of your entertainment options. When playing at licensed offshore online casinos or poker rooms, American players usually won’t hear the words taxes mentioned at all.
Sadly, it is never safe to assume that your winnings are ultimately tax-free. It is true that Americans who play at internet gambling sites outside of the USA won’t be subject to withholding taxes when withdrawing their winnings. Yet you may be required to report these gains when you file your taxes in April. The greatest determinant is the number, size, and frequency of your wins. The actual threshold varies from state to state and whether or not you are an amateur or professional. For more information on reportable gambling winnings visit the IRS guide: https://www.irs.gov/instructions/iw2g/ar02.html
Professional Gamblers
Whether or not you qualify as a professional gambler doesn’t solely depend on your performance at the tables. The main litmus test is the expectation and probability of profit in the eyes of the Internal Revenue Service. Your success and whether or not you have a regular job on top of gambling may also be factors.
With even amateur gamblers having to deal with taxes, professional gambling does have benefits. You can actually deduct your wins from your losses when your treat your gameplay as a business. No matter what your current status is and how often you play, it's best to keep tabs on your performance to develop strategies, stick to a budget, and simply know where you stand. You can find this tip sheet courtesy of the IRS: https://www.irs.gov/taxtopics/tc419.html
Whether or not the IRS can actually track your winnings is another matter entirely. Yet you should be aware of your obligations. With a huge budget deficit and ballooning debt, the federal government is looking to fill their financial holes any way they can. Between the NSA and modern forensic accounting practices, covering your digital tracks is more difficult than it used to be.
Tax Obligations Outside Of The USA
The United States is a bit of an outlier when it comes to taxing gambling winnings. In the United Kingdom, the government taxes the gross profits of casino operators rather than players. Canadians can play the lottery, live casinos, poker and online games without paying taxes unless they are a professional. Likewise, Australians and New Zealanders can also gamble tax-free. To put things in perspective, Americans do pay some of the lowest personal income taxes in the first world. Things tend to even out in the end.
Like anything else, interpreting the rules is always a matter of debate. Here's an interesting tax perspective for Canadians: http://business.financialpost.com/personal-finance/tax-expert-a-gamble-over-poker-winnings
Things To Consider
Keep in mind that Americans have to deal with both Federal and State taxes on most forms of income. Always keep basic records no matter how often you play or win. This will make things easier during tax season.
Accountants Have The Answers
No matter where you live, it's always best to discuss your personal situation with a licensed tax professional in your area. You can usually get a short consultation for free with complete confidentiality. It's the best way to play by the rules while minimizing your tax burden.