As casino gaming and sports wagering activities are surging across the US, anyone looking to join the latest trend should educate themselves on the gambling winnings tax.
This article will cover the federal income tax and also examine the state and local taxes that apply to net income from gambling earnings, both online and land-based.
The data we will cover includes both casual and professional gamblers who might have to deal with a professional gambler tax.
Effects of Gambling & Taxation Laws
Gambling taxes in the US and the laws surrounding them are an intricate system we can observe across multiple tiers.
At the level of federal taxes, gambling money winnings are considered taxable income and must be reported to the Internal Revenue Service (IRS).
The federal gambling tax applies to both U.S. citizens and resident aliens. It covers players who land a win at casinos, lotteries, horse races, and game shows.
Tax Obligations for Players
US players must report all taxable gambling winnings on their federal income tax returns.
If winnings exceed specific thresholds, they are subject to a flat tax rate of 24%. These thresholds include the $1,200 mark on slots or bingo, $1,500 from keno, and $5,000 from poker tournaments.
Casinos and other gambling establishments often withhold taxes on winnings above these amounts, issuing a Tax Form W-2G to the winner and the IRS for federal income tax withholding. However, players are responsible for reporting all winnings, even if no tax was withheld.
Players can also deduct gambling losses, but only up to the amount of winnings. They also must be itemized on Schedule A of the tax return.
Note that the IRS requires documentation like receipts or tickets to validate the claimed losses. Players are required to report all their winnings before a loss deduction can become available as an itemized deduction.
State Tax Considerations
State-level taxation laws on gambling vary significantly between individual states. In some instances, like the state of Nevada, no state income taxes are imposed on players. This is beneficial both to residents and out-of-state visitors who gamble there.
Conversely, states such as New York and California have higher state income tax rates, which influences the net winnings of all players. Some states require casinos to withhold taxes on winnings, similar to federal requirements, while others rely on players to self-report.
Government Revenue from Gambling Winnings Taxes
Revenue from taxes for gambling winnings is a significant source of income for both federal and state governments. These funds support a range of public services, including education, infrastructure, the health department, and social services.
Recent Legislative Changes
When looking at major trends, the Supreme Court’s decision to overturn the Professional and Amateur Sports Protection Act (PASPA) in 2018 which expanded the legalization of sports wagering is the most significant shift in recent US history in this department.
It has prompted many states to establish their own sports betting regulations, which in turn boosted their tax revenue potential.
Online gambling and iGaming are also gaining traction, with states like New Jersey and Pennsylvania leading the charge in legalizing and taxing departments.
What Gambling Tax Revenue Is Going Towards
Gambling tax revenue is typically used for funding state projects and public services. Different states have found innovative ways to allocate these funds, so let’s take a moment to cover a few notable examples.
- Nevada: Nevada directs a substantial portion of its gambling tax revenue toward education. The state uses these funds to boost public school systems and bring better facilities and educational programs for students.
- Pennsylvania: Gambling tax revenue in Pennsylvania goes towards property tax relief for residents. In plain terms, these funds help reduce the financial burden on homeowners. A portion of the revenue also supports the state’s general fund.
- New Jersey: Known for its vibrant Atlanta City casino industry, New Jersey uses gambling tax revenue to support senior citizens and disabled residents, mainly through property tax rebates. The revenue also funds public transportation projects and improves infrastructure where needed.
Money Made From Gambling: How Much Is Generated
According to the latest data from the American Gaming Association, the tax on gambling winnings generated over $17 billion in the first two quarters of 2024 across the US.
As expected, one of the most notable states in terms of gambling revenue generation is Nevada. Pennsylvania follows while states like Utah and Hawaii generate no gambling tax revenue because they prohibit all forms of gambling.
Key factors influencing the increase in gambling tax revenue include:
- Expansion of legalized sports betting following the 2018 repeal of PASPA.
- Growth in online gambling and iGaming platforms, particularly in states like New Jersey and Pennsylvania.
- Increased consumer spending and cash winnings in casinos, fueled by a combination of economic recovery and tourism.
How Does Gambling Tax Work? A Look at Gambling Tax Laws By State
While federal income taxes are straightforward, the way gamblers have to pay taxes varies significantly between states. So let’s take a brief run through the states with legal online gambling and their respective tax rules.
- New Jersey: One of the pioneers in legal online gambling, New Jersey requires players to report all winnings. The state imposes an 8.5% tax on gross gaming revenue, supplemented by a 2.5% investment alternative tax.
- Pennsylvania: Online gambling winnings in Pennsylvania are subject to a 34% tax on slots and a 16% tax on table games. Players must report all gambling income on their state tax returns.
- Michigan: Since online gambling was legalized in 2021, Michigan has levied a tax rate on gambling income ranging from 20% to 28% on gross receipts.
- West Virginia: Online gambling winnings are taxed 15% on the operator’s adjusted gross revenue. Players must report their winnings to avoid tax liability, as all gambling income is subject to state income tax.
- Delaware: As one of the first states to legalize online gambling, Delaware applies a 29.4% tax on gross gaming revenue. Players must report their winnings on their state income tax returns.
- Nevada: Known primarily for its robust land-based casino industry, Nevada also permits online poker. Winnings are subject to federal tax requirements, with no additional state income tax due to Nevada’s tax policies.
- Connecticut: Somewhat recently entered the online gambling market with a tax rate of 18% on online casino gaming, which rises to 20% after five years. Players must report and pay taxes on any gambling income and winnings.
- Illinois: Although primarily focused on sports betting, Illinois allows online gambling with winnings subject to a 15% tax on the operator’s revenue. Players must report winnings on their state returns.
- Indiana: Legal sports betting extends to online platforms, with a tax rate of 9.5% on adjusted gross revenue. Players are responsible for reporting and paying taxes on any gambling winnings.
- Iowa: Online sports betting is legal, and operators are taxed at 6.75% on gross revenue. Players must report their winnings as part of their state income tax obligations.
- Colorado: With a focus on online sports wagering, Colorado imposes a 10% tax on net sports betting proceeds. Winnings must be reported by players for state income tax purposes.
- Tennessee: Online sports betting is legal, with a 20% tax rate on the adjusted gross income of operators. Players are required to report their gambling income winnings on their state tax returns.
- Virginia: Online sports betting is taxed at a rate of 15% on adjusted gross revenue. Players must report winnings, which are subject to state income tax.
- Rhode Island: Online sports betting winnings are taxed at 51% on the operator’s revenue. Players must also report their winnings as taxable income.
- Arizona: Recently legalized online sports betting, with a tax rate of 8% on retail and 10% on online sports betting. Players must report and pay taxes on any winnings.
- Arkansas: Online sports betting is allowed with a tax rate of 13% on the first $150 million and 20% thereafter. Winnings must be reported by players on their state tax returns.
Gambling Winning Tax: Summary
As you can tell, gambling laws vary from state to state. It’s important to check the laws in your jurisdiction or consult a tax professional before filing.
Once again, any legal gambling activity in the US is subject to a flat federal tax rate of 24% if specific thresholds are exceeded.
Then, state and local laws apply, which were all covered in the guide on our page. Players can deduct gambling losses from their taxable income, but once again, local rules apply.
