Winning money at an online casino can be a thrilling experience. However, before you start dreaming of what you’ll do with your windfall, it’s important to understand the tax obligations that come with that prize money. 

What is considered gambling income?

Any money you win from an online casino is considered gambling income by the IRS. This includes cash prizes, bonuses, contest winnings, jackpots, and any other monetary gain resulting from gambling activities. Even if you only win a small amount, you are still required to report it and pay applicable taxes. The casino will likely withhold a percentage for taxes when you withdraw your winnings, but you still owe additional taxes when you file your return.

How gambling winnings are taxed?

Most of the time, gambling winnings are taxed as “other income”. It means they are subject to ordinary federal income tax rates ranging from 10% to 37% depending on your total taxable income. Gambling income is combined with your regular wages, interest, dividends, and other earnings to determine your total income and tax bracket. State taxes also apply to gambling winnings in most jurisdictions. Rates vary widely but typically range from 3% to 8% of your winnings. Some states like Nevada, Florida, and Texas do not tax gambling winnings. The best online casino games should withhold state taxes when you cash out, but be sure to confirm state tax rates for your location.

Filing requirements and forms

You must report all gambling winnings and pay applicable taxes by filing IRS Form 1040. Online casinos are required to issue a Form W-2G summarizing your winnings if you receive payouts above certain thresholds:

  • A bingo or slot machine win of at least $1,200 
  • Winnings from keno of at least $1,500
  • More than $600 and at least 300 times the wager on poker tournaments 
  • $5,000 or more in other types of gambling winnings

Keep detailed records of all winnings and losses. You deduct gambling losses up to the amount of winnings reported. Make sure to have receipts, bank records, and other documentation showing your losses if you get audited.

Tax tips for online gambling winnings

Here are some tips to help minimize taxes and avoid problems when you win money gambling online:

  1. Claim losses up to your winnings and keep meticulous records.
  2. Withhold an appropriate amount for taxes when cashing out major winnings. 
  3. Make quarterly estimated tax payments on gambling income to avoid underpayment penalties.
  4. Consult a tax professional if you have significant winnings.
  5. Keep winnings separate from other funds to simplify tracking and tax reporting.
  6. Understand how winnings impact tax brackets, deductions, credits, and insurance eligibility.
  7. Be truthful when reporting all gambling income and pay required taxes.

By Hannah

Hannah Sullivan: As a seasoned journalist, Hannah's blog provides hard-hitting analysis and in-depth reporting on major crime stories. Her thorough coverage and fearless reporting make her a trusted voice in the field.