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A Guide to Gambling Winnings Tax

Shane C

Nov 19, 2022

Taxes on Gambling Winnings

Gambling has long been an extremely popular pastime. In fact, there is research that shows that around 26% of the earth’s entire population loves nothing more than to place a wager or two. While gambling and casinos are all about fun, there’s no getting away from the fact that all players enjoy the thrill of the win.

What happens to the money when you do win? What about when you’re lucky enough to land a really big prize? Do you get to keep every penny or is there gambling winnings tax to be paid? Is there a difference between live poker and online poker tax? Well, the answer is that it depends. It depends upon where in the world you’re playing and we’re going to take a look at the UK and the US.

Before we dive in, it’s important to note that we’re not tax advisors. If you want information concerning paying taxes on gambling winnings, you need to ensure that you consult with a professional.

The UK and Gambling Winnings Tax

When it comes to gambling winnings tax in the UK, things are relatively simple. Why? Well, when you file your tax return there’s no need to declare anything that you may have won at a casino. Whether you’ve won big on slot machines or outperformed every other player in a poker tournament, your winnings are not classed as taxable income. 

So, why does the UK take this approach to gambling winnings tax? Well, firstly it's because there is the belief that the house always wins. As far as authorities in the UK are concerned, the amount of winnings you rack up will soon be wiped out by what you lose. Secondly, casinos, betting sites and remote gaming operators are all taxed at 15%. This ensures that gambling still generates plenty of revenue for UK tax coffers.

How The US Differs

Gambling Taxes - IRS FormThe US stance on gambling winnings tax is poles apart from the view taken by the UK authorities. Here, your gambling income is taxable, and whether it’s handled by the casino or recorded any other way on your IRS form, you can be sure that there is no way to avoid the need to report the income.

The good news here is that tax deductibles also come into play. That means that, if you win in the United States, you can itemise your deductions and offset this when you report your winnings. The big thing to be aware of here is that to comply with tax laws your tax preparation needs to be able to show your records of wins and losses. 

So, How Does Gambling Winnings Tax Work in The United States?

Let’s say that your cash winnings are substantial. If that’s the case, you can expect to be taxed a total of 24%. This 24% is deducted by the casino which will then give you a copy of the IRS form W-G2 which records the transaction. This means that when it comes to reporting your tax, you already have tax forms to refer to.

While the 24% gambling winnings tax applies to substantial winnings, you may be wondering what constitutes ‘substantial’. Well, this differs depending on the game that you’re playing:

  • With slot machines, it’s $1,200

  • Bingo is also $1,200

  • With keno, it’s $1,500

  • With sweepstakes, wagering pools and lotteries, it’s $5,000

It’s also important to know that if you ever hit a payout of $5,000 or more when the winnings are more than 300 times the amount wagered, the casino will withhold taxes from your winnings at the same 24% rate. 

Taxes on poker winnings are treated differently as they’re classed as games of skill rather than luck. However, you still need to report your winnings; it's just that federal income taxes become payable later rather than being withheld by the casino.

How to Report Gambling Winnings 

When you prepare your tax, the money that you’ve won at gambling, along with the gambling winnings tax that you’ve already paid, get recorded under ‘Other Income’ on form 1040. The 24% that you’ve already paid is just an estimated tax and it could be that you owe more or that you’re due a refund. 

Your total earnings over tax years are what decide if you have to pay more than the 24%. As it stands right now, if you earn more than $164, 925 then you’ll need to pay more. If you earn under $86,376 you could see a refund coming your way. When working out your income you include all gambling winnings and losses and then deduct your losses from the final figure.

How Do State Taxes Work?

When it comes to gambling winnings tax, some states say that you have to claim your winnings in the state where you won them. Nearly all states will tax all income that has been generated in their state no matter what state you reside in.

Gambling Winning Tax Around The World 

If you’re looking at making the most of your gambling winnings then there are certain countries that are better to play in than others. We’ve already seen that in the UK, players aren’t required to pay any tax on what they win but this country is not alone. Here’s a list of other countries where you won’t pay a penny:

  • Spain

  • Italy

  • Russia

  • Romania 

  • Hungary

  • South Africa

  • Estonia 

  • Latvia

That’s not to say that the US is alone in taxing gambling winnings. These are just some of the other countries where winnings are taxable:

  • Mexico - 1% federal tax plus up to 6% state tax

  • Germany - 5% fee on all wagers. If you win, there’s an additional 5% owed from winnings too

  • France - Winnings over €1,500 are taxed at 12%

Final Thoughts 

This is just a brief overview of how gambling winnings tax works in the UK and the US. If you’re looking for in-depth advice, but sure to consult a tax advisor who is qualified to offer this. Just be sure that you’re keeping on the right side of tax laws so that you can continue to enjoy your winnings. 

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