If you've ever won a jackpot through bingo, slots or the lottery, you might have wondered if your winnings are taxable..
- How Much Can I Win Gambling Without Paying Taxes Paid
- How Much Can You Win Gambling Before Paying Taxes
- How Much Can You Win Sports Betting Without Paying Taxes
If you find yourself lucky enough to win big, do you have to declare it and pay taxes? If that thought has ever crossed your mind, you're in luck because BingoPort has you covered. We've put together a guide that will answer whether your winnings really are taxable, a brief history of gambling laws and a look at how this might impact you.
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 Return PA-40 (PDF), line 8 ('Gambling and Lottery Winnings'). The law does allow players to take gambling losses off their taxes, but only up to the amounts of their winnings. Of course, if you win, say $135,000, you can take off all gambling losses, up to that amount. If you gambled away, say $65,000, you would only have to pay taxes on the remaining, let's see: $135,000 minus $65,000 equals $70,000.
So, if you've bagged yourself a big jackpot, congratulations! If you're just here for the information, don't worry—we're sure your time will come someday.
Are Bingo Winnings Taxable?
The short answer is no—your gambling winnings aren't taxable, at least in the UK. Here you won't have to pay taxes on any of your winnings or stakes. It doesn't matter if you've won £100 or £1 million. This applies to all types of gambling—from bingo, to slots, to lotteries, and even horse racing. So if you win big, you can rest assured knowing that you can spend your money in whatever way you'd like.
Depending on the site you're using, your winnings will either be paid to you in one lump sum, or as a certain amount each month. If you've won recently, or you frequent a particular site, casino or betting brand, you should check their Terms and Conditions—this will lay out everything you need to know should your lucky day come.
If you don't live in the UK your winnings might be subject to a tax, so it's important that you check in advance. For example:
- France has a 2% tax on poker cash pots.
- In Spain, you need to declare winnings as income for taxation.
- The Netherlands has a 29% tax if you win more than €454 in the lottery.
If you're a UK citizen and you find yourself gambling abroad, you generally won't need to worry about taxes. Most countries have treaties with the UK, so you won't be subject to their tax requirements.
Gambling wasn't always tax-free however—check out the section below for a summary of the history of gambling and taxes in the UK.
History of Gambling Laws
Betting shows were first legalised with the 1960 Betting and Gaming Act, in which a tax was levied either on stakes or winnings in high street betting shops. This was charged at a whopping 9% for punters. It was abolished by Gordon Brown in his March budget of 2001.
October 23rd, 2020 10:53. One of the best ways to become a successful Texas Hold'em player is to know which starting hands to play and which to fold. In this blog, we bring you the best starting hands in Texas Holdem poker to help you improve your game. This list of the top 10 best starting hands for Texas Hold 'em is a good place to start learning. Do keep in mind, however, that there is some disagreement over which hands are the best, and it does depend in part on your skill level and style of play. Also, a great starting hand can turn bad quickly with the wrong community cards. Here are the top 10 starting hands in Texas holdem along with some suggestions for how to best play them. You can (and should) play other hands preflop, but these might be the most important hands to play preflop. It's hard to go wrong when playing 'rockets,' or 'bullets,' as a pair of aces if often called.
This tax on gamblers themselves was replaced with a 15% tax on bookmakers and their gross profits at point of supply instead. This ‘point of supply' basis meant that if a bookmaker wasn't based in the UK, they weren't liable however. This was a pressing concern for Brown, who feared that the UK was losing revenue to offshore gambling sites.
In fact, more and more bookmakers moved their online operations offshore where they would only have to pay the local tax rate on profits—this was capped at 1% in Gibraltar!
This changed with an amendment to the 2005 Gambling Act in 2014. From this point, the tax was changed to 15% on all gross profits at point of consumption—including offshore companies. This meant that gambling operators in Gibraltar and the Isle of Man for example, were now obliged to pay tax in order to obtain a gambling licence. This amendment essentially made it illegal to operate in the UK without a UK gambling licence.
This had a huge impact in making UK-based bookies and betting shops more competitive—increasing the growth and success of the gambling industry in the UK.
So, Why Aren't They Taxable?
To put it simply, it's just easier for everyone involved to leave winnings untaxed. For example, if people are paying taxes on their winnings just like businesses do, then it would potentially be possible to claim back losses on tax returns. As you can imagine, this would be a nightmare, especially considering the fact that most people lose when it comes to gambling. After all, we all know what the 10 stages of losing at bingo are like!
Who Exactly Pays The Tax?
The casinos and bookmakers are the ones now paying the tax—this is the way they contribute to the UK's economy. There are a variety of different taxes and gambling duties:
- General betting duty
- Bingo duty
- Machine games duty
- Lottery duty
- Gaming duty
- Remote betting duty
Before you start thinking about how tough it must be for gambling businesses, or how great it might be for you, bear in mind that they do pass these costs on to you in some way. For example, some online gambling sites have high wagering requirements or lower odds.
What If You're A Professional Gambler?
When we say ‘professional gambler', we mean someone who essentially uses gambling as their main source of income. But even if this is the case and you are a professional gambler, the answer is still no—your winnings are not taxable.
This is backed up by the HMRC's Business Income Manual at BIM22015. Their position is that betting and gambling don't constitute trading:
'The fact that a taxpayer has a system by which they place their bets, or that they are sufficiently successful to earn a living by gambling does not make their activities a trade'.
Gambling winnings, therefore, remain tax-free, regardless of whether it's your main source of income or a simple hobby. An example of this goes back as far as 1925, in which a man named Alexander Graham was taxed by Inland Revenue. Graham made a living out of betting on horses, so Inland Revenue claimed £300 from him under the 1918 Income Tax Act. This case went to court, where Graham's lawyers argued that betting on horses couldn't be considered a trade. The judge eventually ruled that you can't tax 'habit'.
That's not to say that professional gamblers can't ever be subject to tax. It can get a little bit complicated. For example, if a professional gambler is being paid an appearance fee for playing at a particular tournament, then this would be a type of income that would be liable for tax.
So, I Don't Have To Worry At All Then?
While your winnings aren't taxable by any gambling laws, that doesn't mean you don't have to worry. After all, other taxes may still be applicable.
A problem that many lottery winners have is extra tax—particularly on the ‘bigger' wins. Any income that you generate from your winnings could be subject to income tax—for example, income earned through investments would be subject to a capital gains tax at 18%! And that's not all—your winnings might even be liable to an inheritance tax when you die.
An inheritance tax is levied on property or cash acquired by a gift or inheritance. The threshold for this tax is £325,000, so if your ‘estate' is worth more than that, you're looking at a 40% tax. While you can give your money away to people or charities, it's still liable should you die within 7 years of the gift.
You can give away £3,000 each year tax-free to any one person, or £250 as a gift to someone as long as they're not gifted any further. If you give more than this away and you die, it will be liable to this tax. If you live longer than the allotted 7 years, it will be exempt from the inheritance tax.
If you do end up winning big—whether it's through bingo, the lottery or a casino—you should definitely look to a financial advisor for help on how to invest your money and how to protect it.
Before going out to buy your lottery tickets for the week, find out if the lottery is worth playing.
Conclusion
Well, there you have it. If you live in the UK, our tax laws mean that you can gamble tax-free, without a single worry. Generally speaking, it isn't very likely that this will ever change—taxing gambling winnings will never be viable for the UK. After all, if you tax the income or profit made from an activity, you have to make allowances for any losses made from the same activity.
Now you know that, you can keep playing bingo without a care in the world!
Feeling lucky?Why not try one of BingoPort's recommended bingo sites like Gala Bingo?
So you've won a jackpot on the slots or defied the odds on a sports bet in Indiana. Other than bragging on social media, one of the next things you have to do is give the federal and state governments their cut.
Winnings from all forms of gambling are taxable income, including winnings from:
- Lottery
- Slots
- Table games
- Sports betting
- Horse racing
Even if you put money down and win an organized Rock-Paper-Scissors competition, you have to pay taxes on the winnings. Even non-cash prizes like merchandise have to be reported on your federal and state income tax returns.
The idea that the Internal Revenue Service and the Indiana Department of Revenue won't know is folly. The parties which pay out the prizes, whether that be casinos, sportsbooks, whatever, keep receipts and report them.
How much are my gambling winnings taxed in Indiana?
Effective for tax years after 2017, the federal rate on winnings over $5,000 is 24%. Winnings under that benchmark of $5,000 must also be reported depending on their amounts and sources.
Currently, Indiana's personal income tax rate is 3.23%. Almost all gambling winnings are subject to this tax.
Casinos typically withhold 25% of your winnings for tax purposes. That is only the norm if you provide them with your social security number, however. If you decline that option, they usually withhold 28%.
How to determine if your winnings are taxable income
Another service the casinos usually provide for mutual benefit is sending you the appropriate paperwork. Fortunately, Indiana allows you to fill out the same form for both purposes.
Form W-2G, Certain Gambling Winnings reports your winnings for the year to both the IRS and you, in case you haven't been keeping track.
The amount on this form will include any winnings from the year which qualify for federal taxes. That total will consist of:
- Your winnings (not reduced by the wager) of at least $1,200 from a bingo game or slot machine
- The winnings (reduced by the wager) of at least $1,500 from a keno game
- Your winnings (reduced by the wager or buy-in) of at least $5,000 from a poker tournament
- The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are $600 or more, and at least 300 times the amount of the bet
- Your winnings that are subject to federal income tax withholding (either regular gambling withholding or backup withholding)
How to report your gambling winnings to the IRS
The IRS requires you to report the total of your all qualifying gambling winnings for the year on a Form 1040. If you get the W-2G from the payers of your winnings, it's a simple process of adding up those winnings and the amount of tax they withheld and then transferring those totals onto the 1040.
Add up all the numbers from Box 1 on the W-2G forms and separately, calculate the sum of all the numbers from Box 2. Place the Box 1 total on line 21 of the 1040 and place the Box 2 sum on the line designated as federal income tax withheld.
Even if the game operator didn't do its job and you didn't receive a W-2G, that doesn't mean you're off the hook.
You are still required to report all your gambling winnings from the year on the form 1040. To do that, fill out Schedule 1 with your gambling winnings as 'Other Income.' Attach that to Form 1040 and include it in your personal income tax return.
So what if you weren't flying solo, but pooled your resources together with others to maximize your chances of winning it big? That doesn't change much.
How Much Can I Win Gambling Without Paying Taxes Paid
Paying taxes on a shared prize
The IRS is prepared for this scenario. Form 5754is your go-to.
This is the form to use when you receive gambling winnings, not in your name on a W-2G. This form is also appropriate when you're part of a group of two or more people sharing winnings.
The important thing to remember is that Form 5754 should not be included in your income tax return. Fill it out and give it to the person who received the W-2G.
Keep a copy for your records. The person who received the initial W-2G should submit all the appropriate 5754s back to the casino so they can correctly record the transaction.
The casino will then send each person their own W-2G. From there, the process is identical to how you would report any individual winnings.
How to report your gambling winnings to Indiana
As previously stated, Indiana is a state that allows you to use Form W-2G for your state income tax return as well. To do so, transfer the amount from Line 7 of your Federal 1040 to Line 1 of your IT-40.
If all or part of your winnings came while you were outside of the Hoosier State, you still must report them. That includes winnings from multistate lotteries. Report them just as you would if they came from an in-state game.
There is one legal way to reduce your tax liability from gambling winnings. It only applies if you opt to itemize your deductions, however.
Indiana and IRS gambling deductions for taxes
The IRS does allow a deduction for gambling losses. It cannot be claimed if you take the standard deduction on your return, however.
For those who itemize, gambling losses go on Line 28 of Schedule A, Form 1040. You cannot claim a deduction larger than your reported winnings.
And just because you deposit more than you withdraw from your bank account is not necessarily sufficient evidence. You must prove your losses.
You also cannot deduct expenses incurred along the way. The cost of your hotel and meals are just part of the necessary out-of-pocket expense.
If you opt to itemize and claim gambling losses, you're better off keeping the following for your records:
- The date and type of each wager
- Where you placed the bet, i.e., the name of the casino
- How much you won or lost
- Wagering tickets
- Canceled checks
- Credit card records
This tax on gamblers themselves was replaced with a 15% tax on bookmakers and their gross profits at point of supply instead. This ‘point of supply' basis meant that if a bookmaker wasn't based in the UK, they weren't liable however. This was a pressing concern for Brown, who feared that the UK was losing revenue to offshore gambling sites.
In fact, more and more bookmakers moved their online operations offshore where they would only have to pay the local tax rate on profits—this was capped at 1% in Gibraltar!
This changed with an amendment to the 2005 Gambling Act in 2014. From this point, the tax was changed to 15% on all gross profits at point of consumption—including offshore companies. This meant that gambling operators in Gibraltar and the Isle of Man for example, were now obliged to pay tax in order to obtain a gambling licence. This amendment essentially made it illegal to operate in the UK without a UK gambling licence.
This had a huge impact in making UK-based bookies and betting shops more competitive—increasing the growth and success of the gambling industry in the UK.
So, Why Aren't They Taxable?
To put it simply, it's just easier for everyone involved to leave winnings untaxed. For example, if people are paying taxes on their winnings just like businesses do, then it would potentially be possible to claim back losses on tax returns. As you can imagine, this would be a nightmare, especially considering the fact that most people lose when it comes to gambling. After all, we all know what the 10 stages of losing at bingo are like!
Who Exactly Pays The Tax?
The casinos and bookmakers are the ones now paying the tax—this is the way they contribute to the UK's economy. There are a variety of different taxes and gambling duties:
- General betting duty
- Bingo duty
- Machine games duty
- Lottery duty
- Gaming duty
- Remote betting duty
Before you start thinking about how tough it must be for gambling businesses, or how great it might be for you, bear in mind that they do pass these costs on to you in some way. For example, some online gambling sites have high wagering requirements or lower odds.
What If You're A Professional Gambler?
When we say ‘professional gambler', we mean someone who essentially uses gambling as their main source of income. But even if this is the case and you are a professional gambler, the answer is still no—your winnings are not taxable.
This is backed up by the HMRC's Business Income Manual at BIM22015. Their position is that betting and gambling don't constitute trading:
'The fact that a taxpayer has a system by which they place their bets, or that they are sufficiently successful to earn a living by gambling does not make their activities a trade'.
Gambling winnings, therefore, remain tax-free, regardless of whether it's your main source of income or a simple hobby. An example of this goes back as far as 1925, in which a man named Alexander Graham was taxed by Inland Revenue. Graham made a living out of betting on horses, so Inland Revenue claimed £300 from him under the 1918 Income Tax Act. This case went to court, where Graham's lawyers argued that betting on horses couldn't be considered a trade. The judge eventually ruled that you can't tax 'habit'.
That's not to say that professional gamblers can't ever be subject to tax. It can get a little bit complicated. For example, if a professional gambler is being paid an appearance fee for playing at a particular tournament, then this would be a type of income that would be liable for tax.
So, I Don't Have To Worry At All Then?
While your winnings aren't taxable by any gambling laws, that doesn't mean you don't have to worry. After all, other taxes may still be applicable.
A problem that many lottery winners have is extra tax—particularly on the ‘bigger' wins. Any income that you generate from your winnings could be subject to income tax—for example, income earned through investments would be subject to a capital gains tax at 18%! And that's not all—your winnings might even be liable to an inheritance tax when you die.
An inheritance tax is levied on property or cash acquired by a gift or inheritance. The threshold for this tax is £325,000, so if your ‘estate' is worth more than that, you're looking at a 40% tax. While you can give your money away to people or charities, it's still liable should you die within 7 years of the gift.
You can give away £3,000 each year tax-free to any one person, or £250 as a gift to someone as long as they're not gifted any further. If you give more than this away and you die, it will be liable to this tax. If you live longer than the allotted 7 years, it will be exempt from the inheritance tax.
If you do end up winning big—whether it's through bingo, the lottery or a casino—you should definitely look to a financial advisor for help on how to invest your money and how to protect it.
Before going out to buy your lottery tickets for the week, find out if the lottery is worth playing.
Conclusion
Well, there you have it. If you live in the UK, our tax laws mean that you can gamble tax-free, without a single worry. Generally speaking, it isn't very likely that this will ever change—taxing gambling winnings will never be viable for the UK. After all, if you tax the income or profit made from an activity, you have to make allowances for any losses made from the same activity.
Now you know that, you can keep playing bingo without a care in the world!
Feeling lucky?Why not try one of BingoPort's recommended bingo sites like Gala Bingo?
So you've won a jackpot on the slots or defied the odds on a sports bet in Indiana. Other than bragging on social media, one of the next things you have to do is give the federal and state governments their cut.
Winnings from all forms of gambling are taxable income, including winnings from:
- Lottery
- Slots
- Table games
- Sports betting
- Horse racing
Even if you put money down and win an organized Rock-Paper-Scissors competition, you have to pay taxes on the winnings. Even non-cash prizes like merchandise have to be reported on your federal and state income tax returns.
The idea that the Internal Revenue Service and the Indiana Department of Revenue won't know is folly. The parties which pay out the prizes, whether that be casinos, sportsbooks, whatever, keep receipts and report them.
How much are my gambling winnings taxed in Indiana?
Effective for tax years after 2017, the federal rate on winnings over $5,000 is 24%. Winnings under that benchmark of $5,000 must also be reported depending on their amounts and sources.
Currently, Indiana's personal income tax rate is 3.23%. Almost all gambling winnings are subject to this tax.
Casinos typically withhold 25% of your winnings for tax purposes. That is only the norm if you provide them with your social security number, however. If you decline that option, they usually withhold 28%.
How to determine if your winnings are taxable income
Another service the casinos usually provide for mutual benefit is sending you the appropriate paperwork. Fortunately, Indiana allows you to fill out the same form for both purposes.
Form W-2G, Certain Gambling Winnings reports your winnings for the year to both the IRS and you, in case you haven't been keeping track.
The amount on this form will include any winnings from the year which qualify for federal taxes. That total will consist of:
- Your winnings (not reduced by the wager) of at least $1,200 from a bingo game or slot machine
- The winnings (reduced by the wager) of at least $1,500 from a keno game
- Your winnings (reduced by the wager or buy-in) of at least $5,000 from a poker tournament
- The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are $600 or more, and at least 300 times the amount of the bet
- Your winnings that are subject to federal income tax withholding (either regular gambling withholding or backup withholding)
How to report your gambling winnings to the IRS
The IRS requires you to report the total of your all qualifying gambling winnings for the year on a Form 1040. If you get the W-2G from the payers of your winnings, it's a simple process of adding up those winnings and the amount of tax they withheld and then transferring those totals onto the 1040.
Add up all the numbers from Box 1 on the W-2G forms and separately, calculate the sum of all the numbers from Box 2. Place the Box 1 total on line 21 of the 1040 and place the Box 2 sum on the line designated as federal income tax withheld.
Even if the game operator didn't do its job and you didn't receive a W-2G, that doesn't mean you're off the hook.
You are still required to report all your gambling winnings from the year on the form 1040. To do that, fill out Schedule 1 with your gambling winnings as 'Other Income.' Attach that to Form 1040 and include it in your personal income tax return.
So what if you weren't flying solo, but pooled your resources together with others to maximize your chances of winning it big? That doesn't change much.
How Much Can I Win Gambling Without Paying Taxes Paid
Paying taxes on a shared prize
The IRS is prepared for this scenario. Form 5754is your go-to.
This is the form to use when you receive gambling winnings, not in your name on a W-2G. This form is also appropriate when you're part of a group of two or more people sharing winnings.
The important thing to remember is that Form 5754 should not be included in your income tax return. Fill it out and give it to the person who received the W-2G.
Keep a copy for your records. The person who received the initial W-2G should submit all the appropriate 5754s back to the casino so they can correctly record the transaction.
The casino will then send each person their own W-2G. From there, the process is identical to how you would report any individual winnings.
How to report your gambling winnings to Indiana
As previously stated, Indiana is a state that allows you to use Form W-2G for your state income tax return as well. To do so, transfer the amount from Line 7 of your Federal 1040 to Line 1 of your IT-40.
If all or part of your winnings came while you were outside of the Hoosier State, you still must report them. That includes winnings from multistate lotteries. Report them just as you would if they came from an in-state game.
There is one legal way to reduce your tax liability from gambling winnings. It only applies if you opt to itemize your deductions, however.
Indiana and IRS gambling deductions for taxes
The IRS does allow a deduction for gambling losses. It cannot be claimed if you take the standard deduction on your return, however.
For those who itemize, gambling losses go on Line 28 of Schedule A, Form 1040. You cannot claim a deduction larger than your reported winnings.
And just because you deposit more than you withdraw from your bank account is not necessarily sufficient evidence. You must prove your losses.
You also cannot deduct expenses incurred along the way. The cost of your hotel and meals are just part of the necessary out-of-pocket expense.
If you opt to itemize and claim gambling losses, you're better off keeping the following for your records:
- The date and type of each wager
- Where you placed the bet, i.e., the name of the casino
- How much you won or lost
- Wagering tickets
- Canceled checks
- Credit card records
How Much Can You Win Gambling Before Paying Taxes
Casinos can make this easy for you as well. If you're part of their rewards programs, getting an annual summary of your gambling losses is quite simple.
The same goes for any winnings from the latest gambling option, legal sports betting in Indiana.
Taxes on sports betting winnings
With legal sports betting new to Indiana, there are plenty of people betting on college football and the NFL. Your parlay on Notre Dame football or Purdue football games is also taxable income if it exceeds $600. It doesn't matter whether you placed your wager at an Indiana online sportsbook, inside a casino, on a kiosk at an off-track betting site or on your phone from your couch.
Just like other types of gaming operators, the book you placed your bet with should send you a W-2G. You can use that to report your winnings and withholdings to both Indiana and the IRS.
The positive side of that is just like any other gambling losses; the money you lose betting on sports can be deductible if you choose to itemize. Just as with any other deductions you claim, keeping detailed records is essential.
With any money that is deemed income by the IRS, it's important to know what your specific tax bracket is to avoid underpayment. The highest federal tax rate is currently 35%, and that's in addition to the 3.23% you would owe the state on your sports betting winnings.
As most operators only withhold 25% of winnings automatically, you may owe additional federal tax above and beyond what the operator withheld based on your personal income. That amount would be due upon filing.
That applies equally to those who play casino games in person and online in the Hoosier State.
Taxes on online casino games and online poker
While online poker and online casinos have yet to be legalized, when they do, taxes will work the same as they do at land-based casinos.
How Much Can You Win Sports Betting Without Paying Taxes
The operators of the games should send you a W-2G summing up all your winnings from the year once they reach certain thresholds depending on the type of game. Those are:
- Your winnings (not reduced by the wager) of at least $1,200 from a bingo game or slot machine
- The winnings (reduced by the wager) of at least $1,500 from a keno game
- Your winnings (reduced by the wager or buy-in) of at least $5,000 from a poker tournament
- The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are $600 or more, and at least 300 times the amount of the bet
- Your winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding)
With the W-2G in hand, you have what you need to report your winnings and pay any applicable taxes to both the state of Indiana and the IRS. Let's review all the pertinent information that is relevant regardless of where your winnings came from:
- The gaming operator you placed your wagers with should send you a W-2G
- You can use the W-2G to report your winnings on both your federal and state taxes
- How much federal tax you pay depends on your personal income
- The Indiana rate is 3.23%
- If you don't get a W-2G, you still have to claim your winnings as income if they qualify
- You can deduct your losses on your federal return, but you must itemize
- If you do go that route, keep any and all records from the transactions
With those simple things in mind, you too can stay safe from tax fraud while gaming in Indiana. Enjoy the games!
