• Percentage Of Winning Blackjack

In McClanahan vs. The U.S., the IRS wouldn’t allow offsetting loses against $50,000 in blackjack winnings, even though unsubstantiated — and likely — gambling losses exceed that figure. File Form W-2G, Certain Gambling Winnings, to report gambling winnings and any federal income tax withheld on those winnings. The requirements for reporting and withholding depend on the type of gambling, the amount of the gambling winnings, and generally the ratio of the winnings to the wager. File Form W-2G with the IRS. How Blackjack Players can Avoid Surveillance at a Live Casino. One way that you can avoid falling on to the suspicious person reporting sheet is by limiting your blackjack transactions in a live casino. This may work, but the casino can always sidestep the rules and accuse you at their discretion.

Gambling income, unsurprisingly, is subject to income tax. This post is an overview of federal and Michigan treatment of gambling income and losses.

FEDERAL TAX TREATMENT OF GAMBLING INCOME & LOSSES

On your federal income tax return, you can take an itemized deduction for gambling losses, but only to the extent of gambling income (in other words you can’t claim an overall loss on gambling activity).

Example: John likes to play blackjack and had winnings of $40,000 in 2009. He also lost $90,000 in the same year. John has to report his $40,000 winnings as income, but he can only deduct $40,000 of his gambling losses because gambling losses are limited to gambling winnings. Excess gambling losses cannot be carried forward.

It should be noted that taxpayers must itemize to claim gambling losses.

Example: Joan won $4,000 in the lotto in 2009. She also lost $5,500 in other gambling activity during the year. If she does not itemize, she has to claim the $4,000 in income and cannot deduct the $5,500 in gambling losses—not a good result.

Even though the itemized deduction for gambling losses can offset gambling income, it is a below-the-line deduction (i.e., it is taken after computing AGI). AGI is used to calculate various phaseouts for credits and deductions. Therefore, gambling income may affect your phaseouts even though they are offset by gambling losses.

MICHIGAN TAX TREATMENT OF GAMBLING INCOME & LOSSES

In Michigan, gambling income is based on the amount of gambling winnings included in federal AGI (the bottom line of the first page of your Form 1040) without taking into account the itemized deduction for gambling losses. So, in the above examples, John has $40,000 in gambling income on his MI-1040 and pays $1,700 in tax and Joan has $4,000 in gambling income on her MI-1040 and pays $170 in tax even though both John and Joan had overall gambling losses.

To get around this unlucky result, the strategy is to use gambling losses to directly offset gambling income, rather than take gambling losses as an itemized deduction. There are two ways to do this:

* Special Rule for Slots and other Casual Gambling

* Becoming a professional gambler (harder than you think and will not be discussed here)

SPECIAL RULE FOR SLOTS AND OTHER CASUAL GAMBLING

Generally, gambling winnings and losses have to be determined on a wager-by-wager basis. For causal gambling (slots, poker, blackjack, horse racing, etc.) you can determine gambling winnings and losses on a net daily basis. By figuring gambling income on a daily basis (rather than wager-by-wager) gambling winnings are directly offset by gambling losses (and thus become excludable from Michigan income tax).

Example (wager-by-wager basis): Jimmy goes to the casino on Friday and buys $1,000 in tokens to play slots. He has $9,000 in winning spins and $6,000 in losing spins. He cashes out on Friday with $3,000. Jimmy wants to continue his winning streak on Saturday. He buys $4,000 in tokens. This time Jimmy has $1,000 in winning spins and $5,000 in losing spins. He leaves the casino with nothing.

On a wager-by-wager basis, Jimmy has $10,000 in winning spins over the two days and reports this amount as income. Jimmy has $11,000 in losing spins over the two days and deducts his losses as an itemized deduction (limited to the $10,000 in gambling winning). However, on Jimmy’s Michigan tax return, he must report the $10,000 as income, but cannot take a deduction for gambling losses.

Same Example (daily basis): Jimmy’s daily gambling winnings and losses are netted. Jimmy has overall income of $2,000 on Friday (Cash Out: $3,000 & Cash In: $1,000) and an overall loss of $4,000 on Saturday (Cash Out: $0 & Cash In: $4,000). On a daily basis, Jimmy had $2,000 of gambling winnings on Friday and $4,000 of gambling losses on Saturday. On his federal return, he must report $2,000 of gambling winnings and gambling losses of $2,000 (again, the itemized deduction for gambling losses is limited to gambling winnings). On his Michigan return, he only reports the Friday daily winnings of $2,000.

It is CRITICAL that gambling winnings and losses be properly documented. The following information should be maintained in a log:

1. the date and type of specific wager or wagering activity

2. the name and address of the gambling establishment

3. the names of other persons present with the taxpayer at the gambling establishment

4. the amount won or lost

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Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

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:

• 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.

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)

Percentage Of Winning Blackjack

In terms of deductions for taxes, players can request a report from online casinos detailing wins and losses.