Filing Taxes Gambling Winnings

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So you’ve managed to beat the oddsmakers at a Tennessee sportsbook? Or perhaps you’ve hit it big playing Mega Millions, Powerball or another Tennessee Lottery game?

When you file your taxes, you’ll report your gambling winnings as “Other Income” when you file with 1040.com. The betting establishment will likely send you a Form W-2G, Certain Gambling Winnings, from the betting establishment if your winnings are at least 300 times what you bet and over $600 (or otherwise subject to federal income tax withholding). All gambling winnings are taxable income—that is, income that is subject to both federal and state income taxes (except for the seven states that have no income taxes). It makes no difference how you earn your winnings, whether at a casino, gambling website, Church raffle, or your friendly neighborhood poker game.

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  • More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament Any winnings subject to a federal income-tax withholding requirement If your winnings are reported on a Form W-2G, federal taxes are withheld at a flat rate of 24%. If you didn’t give the payer your tax ID number, the withholding rate is also 24%.
  • Your and your spouse's filing status. Amount of your gambling winnings and losses. Any information provided to you on a Form W-2G. The tool is designed for taxpayers who were U.S. Citizens or resident aliens for the entire tax year for which they're inquiring.

Not to rain on your parade, but the IRS considers any gambling winnings taxable income. This includes cash and material prizes such as boats and cars.

According to federal law, you must report your winnings on your federal tax return for the appropriate year. This is especially crucial for Tennesseans now that online sports betting is legal.

Tennesseans might have many questions related to gambling and taxes. These might include how to report your winnings to the IRS, along with what rate the IRS taxes those winnings at.

Fortunately, it isn’t that complicated. The IRS has clear procedures in place for how to handle such instances. When you know those procedures, you can rest assured that you’re compliant with federal laws.

Sportsbooks and the Tennessee lottery can help you out in this regard as well. They also have to follow federal and state reporting procedures, so their protocols can make the process of reporting winnings even easier for players.

Here are your obligations under federal and state laws if you’ve successfully gambled in Tennessee.

How much will the IRS tax my gambling winnings?

Filing Taxes With Gambling Winnings

Effective for tax years after 2017, the federal withholding rate for gambling winnings of $5,000 or more is 24%. That’s a cumulative amount for the entire year, so even if you win $1,000 on five or more separate occasions during the year, you still need to report your winnings.

Sportsbooks and the Tennessee lottery typically withhold 25% of your total winnings for tax purposes. That’s only if you provide the sportsbooks with your Social Security number, however.

If you choose to withhold your SSN from sportsbooks, they typically withhold 28% of your winnings. Sportsbooks need your SSN to accurately report their business dealings to the IRS.

Tennessee has no state earned income tax. Your winnings may be subject to the Hall Income Tax, however, for the 2020 tax year and prior years.

It really depends on how you use those funds. The state doesn’t consider your lottery and sports betting winnings themselves taxable income, but if you use the money to produce certain kinds of dividends and interest, the state may tax those dividends and interest.

There are many exceptions to the taxable dividends and interest list, such as interest paid on personal savings accounts. The Hall Income Tax sunsets completely on Jan. 1, 2021.

For 2020, the rate is 1%.

The IRS has a form specific to reporting gambling winnings. That’s where the Tennessee sportsbook apps and the Tennessee lottery can be of the greatest assistance to you.

Federal form W-2G, certain gambling winnings

The IRS puts the burden of sending out the W-2G on the organization that pays out winnings. If you win any cash or prizes this year, you should get a W-2G from that entity in plenty of time to file your federal taxes.

Fortunately, there’s nothing you need to do to the form. Do not include it in your IRS filing. You will need it when you file your federal income tax return, however. You should keep a copy for your own records for at least five years.

If your winnings reach one or more of the following thresholds, you should get a W-2G from the sportsbook you won with or the Tennessee lottery. Each entity you successfully gambled with will provide you with a separate W-2G.

Those federal thresholds are:

  • Winnings of $1,200 or more from a bingo game or slot machine
  • Winnings, minus your wager, of $1,500 or more from a keno game
  • Winnings, minus your buy-in or wager, of more than $5,000 from a poker tournament
  • Winnings of $600 or of a value at least 300 times the buy-in/wager or more, except those from bingo, keno, poker tournaments and slot machines
  • Winnings that are subject to federal income tax withholding for any other reason

What if I don’t receive a Form W-2G?

If you’re a legal US citizen or resident, you must report your eligible gambling winnings on your federal earned income tax returns regardless of whether you receive a Form W-2G or not.

Contact the sportsbook operator or the Tennessee lottery if you need a W-2G and don’t receive it in a timely manner, there may have been an error.

If you still can’t get a W-2G, use Form 1040, Schedule 1 to report your winnings. Use the “Other Income” section to denote the value of your cash and material prize winnings.

Filing Taxes Gambling Winnings

Include that form with your other documents in your IRS filing for the appropriate year. There’s one more step you need to take even if you do receive a Form W2-G.

How to report winnings on your federal income tax return

The IRS requires you to report your gambling winnings on Form 1040, Schedule T, Line 8. If you do get a Form W-2G, this is a very simple process.

Since you are reporting your gambling winnings from all sources, gather up all your relevant W-2G forms (if you have more than one). If all your winnings came from a single source, this process is even easier.

Simply transfer the amount in Box 1 on your W-2G form to Line 7a of your 1040. If you received more than one W-2G, you will need to add up all the amounts in Box 1 on all the forms and then put that total in Line 7a of your 1040.

Filing taxes with gambling winnings

The same process applies if there is an amount shown in Box 2 on your W-2G forms. Include that amount in your total federal income tax withheld on Line 17 of your 1040.

This is the correct procedure for reporting gambling winnings for an individual. If you’re part of a group that won a cash or material prize, the process is a little different.

What if I’m part of a group of people that wins a cash prize?

If you and several of your co-workers pool resources to buy lottery tickets and win, or you go in with a couple of friends on a big sports wager, the IRS still considers your winnings taxable income. There’s a form just for these occasions.

That’s Form 5754. The sportsbook and/or the lottery use this form to prepare the W-2G when a group of people wins a prize, or the person receiving gambling winnings isn’t the actual winner.

The sportsbook or the lottery should send you a blank copy. The onus is on you to accurately fill it out and return it to the party granting the prize. They need it for their tax records.

Just like the W-2G, you shouldn’t include this form in your federal tax return. You should keep it for your own records, however. The minimum recommended time to do so is five years.

Are gambling losses tax deductible?

You can deduct your gambling losses. You must itemize your deductions in order to take advantage of that allowance, however. The IRS does not allow you to deduct more than you win in a tax year or deduct your expenses incurred while gambling.

Just like with any other deductions you claim, you should keep all relevant paperwork for a period of at least five years. This includes:

  • Receipts for your wagers that denote the date and type of bet
  • The name of the sportsbook or the location where you bought a lottery ticket
  • The amount lost or won
  • Wagering tickets
  • Debit card records
  • Bank statements
  • Canceled checks

Many sportsbooks keep a running account of your activity in your account profile. This can make it easy to identify your total losses for the year and see if it would be worthwhile to itemize your deductions and report them.

Remember, deducting your losses isn’t a matter of subtracting your losses from your winnings and then simply reporting what’s leftover. You must report all your qualified winnings to the IRS regardless of any losses you suffer.

What if I win a Mega Millions or Powerball jackpot?

The IRS considers cash or material prizes won playing multi-state lotteries as taxable income. You would report such prizes using the same methods as if you won a prize playing a Tennessee lottery game.

The same goes for if you claim winnings in Tennessee but maintain your legal residence in another state.

The process of reporting the value of non-cash prizes is somewhat murky, however.

The IRS does supply a definition of the “fair market value” of material prizes. That is, “the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts.”

The IRS does not supply a formula to determine that value, however. You will have to check out the going rates for similar items in your area to determine the fair market value for your material prize.

Once you’ve determined that, you need to include that with your winnings for the year on your Form 1040. If you’re unsure of how to value your prize, this is where contacting the IRS may be beneficial.

Online sports betting and taxes

The IRS makes no differentiation between winnings won in-person or online in terms of gambling. Additionally, the IRS considers sports betting winnings taxable income.

You must report all your qualified sports betting winnings, whether they came through online or retail channels, to the IRS. The general rule of thumb is to report your winnings once you hit the threshold of $600 or winnings of 300 times the amount you have wagered in a tax year.

The sportsbook should send you a Form W-2G. This will make it easy for you to report your winnings on Line 7a of your Form 1040 for the IRS.

Tennessee is among the best states for gambling purposes, as the state does not tax your winnings in most cases. Following this advice, you can fulfill your federal obligations and enjoy the remainder of your winnings.

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If you had a successful night at the slots or poker tables, you're going to have to share some of the lucky proceeds with Uncle Sam. The Internal Revenue Service generally requires that you report your gambling winnings and losses separately when you file your taxes rather than combining the two amounts.

Record Keeping

Filing State Taxes For Gambling Winnings

As you gamble during the year, you need to keep records of your winnings and losses so that you can support whatever figures you report on your taxes. The IRS permits you to use per-session recording, which means that instead of recording whether you won or lost each time you pull the slot machine, you can simply record your total for the session. Your records should include the date and type of gambling, where you gambled and if you gambled with anyone else, such as a home poker game. If you win more than $600, you should receive a Form W-2G from the casino.

Taxable Winnings

Filing Taxes On Gambling Winnings

When figuring your gambling winnings, only include the winnings from each session rather than using losses to offset your gains. You have to include gambling winnings even if you didn't receive a Form W-2G from the casino. For example, if you gambled six times during the year, winning $100, $3,000, $4,000 and $6,000 but losing $5,000 and $2,000, your gambling winnings for the year are $13,100. This amount gets reported on line 21 of your Form 1040 tax return.

Filing Taxes For Gambling Winnings

Gambling Losses

Filing Taxes With Gambling Winnings

To claim your gambling losses, you have to itemize your deductions. Gambling losses are a miscellaneous deduction, but -- unlike some other miscellaneous deductions -- you can deduct the entire loss. The deduction goes on line 28 of Schedule A and you have to note that the deduction is for gambling losses. For example, if you lost $5,000 on one occasion and $7,000 on another, your total deduction is $12,000.

Gambling Loss Limitation

You can't deduct more in gambling losses than you have in gambling winnings for the year. For example, suppose you reported $13,000 in gambling winnings on Line 21 of Form 1040. Even if you lost $100,000 that year, your gambling loss deduction is limited to $13,000. Worse, you aren't allowed to carry forward the excess, so if you had $87,000 in losses you couldn't deduct last year, you can't use that to offset the gambling income from the current year.

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