How Much State & Federal Tax Is Withheld on Casino Winnings?

by Kathy Zheng

    If you are lucky enough to win when you go to the casino, you will not necessarily have to report the winnings on your tax returns. For practical purposes it does not make sense to report winnings every time you win 50 cents in a slot machine. Instead, the federal government has set a 25 percent tax rate on minimum gains for tax reporting purposes. Each state government has also set minimums.

    The IRS has set minimum winnings for several games. At the time of publication, for bingo or slot machines the minimum is $1,200, for Keno the minimum is $1,500, and for poker or card games the minimum is $5,000. Each of these winnings is calculated by first deducting the initial buy-in. For example, if you won $5,500 but had to buy in a poker game for $1,000, then you would not be subject to the minimum. The federal tax for each type of winnings is 25 percent.

    The IRS has created form W-2G and 5754 for reporting gambling winnings. The link to those forms is in the resources section on the IRS site. They lay out the line items of winnings for easy disclosure. Multiple wagers may be confusing; however, according to the IRS, for multiple wagers "such as the $12 box bet on a Big Triple or Trifecta, the wager is considered as six $2 bets." However, bets that are identical can simply be added together. This simplifies the process a little bit and makes Form 5754 easier to complete.

    The government also has regulations on winnings from lotteries, sweepstakes and wagering pools. The winnings of these are also taxed at 25 percent. Similar to gifts, if you win a non-cash item such as a car, you must report the value of the car as earnings. For example, if you win a new $20,000 car, you will owe $5,000 in taxes on that vehicle to the federal government.

    Each state has different regulations in regard to its state tax on winnings. For example, Iowa requires a 5 percent tax rate on winnings in addition to the federal rate. The most popular state for gambling in the U.S. is Nevada, which has no state tax on gambling winnings. However, you should check your local state department of revenue for more information on its rate.

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    About the Author

    Kathy Zheng is a personal financial planner. She holds a Bachelor of Arts in economics and is certified as a level 1 financial adviser.

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