Gambling Wins: How Do the Taxes Work?
If you’re like most people, when you head to the track or casino or you place a few bets online, your thoughts are not really focused on the taxes you’ll have to pay when you win. There are a lot of regulations in place around this though, and it’s important to know what you need […]
If you’re like most people, when you head to the track or casino or you place a few bets online, your thoughts are not really focused on the taxes you’ll have to pay when you win. There are a lot of regulations in place around this though, and it’s important to know what you need to do.
When you think about it, the fact that gambling is taxed is no real surprise. The industry is huge and generates major profits; governments are very interested in getting their slice of the pie. Like expert information on slots or other games that will help you to win, you won’t know much about gambling taxes unless you do a little digging. This article is a great starting point for that.
Every country has its own tax laws, and going into all of them here would be ungainly and quite confusing. We’ve focused on Britain and the United States, to give you an idea on how taxes work and the considerations that are important to governments, as well as how different the laws in 2 countries can be. For specific legislation on gambling winnings taxes in other countries, tax agencies and governmental information sites should be able to tell you what you need to know.
Gambling Taxes in the United Kingdom
Following a long history of the government realising it was not making as much money as possible and changing the gambling tax laws accordingly, the situation in the United Kingdom is currently quite agreeable to both country and individual gambler.
All gambling payouts in the United Kingdom are subject to a Point of Consumption Tax, meaning all gross profits by any operator are taxed 15%. Players don’t need to worry about getting taxed on any winnings, and offshore establishments are now forced to pay into the UK Treasury coffers with this 2014 amendment to the 2005 Gambling Act.
General punting income falls under the same tax laws, and professional gamblers don’t have to pay any tax either although by the same token they can’t get any kind of income tax rebate. Spread betting, binary options and index betting are regulated by the Financial Conduct Authority rather than the Gambling Commission, but you are still not required to pay Capital Gains Tax or stamp duty.
Placing bets on market and fixed odds currency fluctuations with bookmakers is not taxed either, although if spread betting is your primary source of income you may be liable for tax as you are effectively operating as a trader. This also means you’d be able to write off any losses against tax.
Gambling Taxes in the United States
In the United States, each state has varying tax laws for gambling in addition to federal tax requirements. Stateside gamblers need to check the specifics for the state that they are in with regards to land-based gambling. Online activities supposedly subject to the same federal taxes as offline gambling, but after the enforcement of UIGEA in 2006 this is a very grey area and very challenging to enforce.
Like their British counterparts, however, US governmental agencies are quick to spot a profitable tax opportunity, and the massive online gambling industry is most certainly that. To that end, a lot of states are pushing for their own online betting and casino win tax laws, and this is also a situation that we suggest monitoring very closely. For now, we’ll focus on the federal tax laws as they apply to online and offline wins.
Unlike income tax, casino taxes in the United States are not progressive. Whether you win $10 or $10,000, you’ll have to pay 25% to the IRS. All wins must be reported because they all contribute to your total income tax, but winnings of the following amounts must be detailed separately on an IRS Form W2-G:
- $600 or more on Horseracing, if that is 300x times your bet
- $1,200 or more on slots or Bingo games
- $1,500 or more on Keno games
- $5,000 or more on winnings in Poker tournaments
Takings in table games like Baccarat, Blackjack, Roulette and Craps don’t require a Form W2-G, no matter what the amount that you win is, but you do still need to pay the 25% tax. You can itemise your losses for deductions, and claim for an amount up to your winnings. These are dealt with as miscellaneous deductions on Schedule A.
In terms of record keeping, the IRS requires that certain forms are kept; if you file your returns electronically you don’t need to submit them but it’s a good idea to keep them in order and easily to hand in case you are ever audited. These are details on the type of gambling activity you engaged in, the date that it happened and information on the establishment.