Gambling Income: What It Is, How It Works, and Advantages

What Is Gambling Income?

Gambling income is any money that you make from games of chance or wagers on events with uncertain outcomes. Gambling income is fully taxable and must be reported on your federal tax return as gambling income.

How Gambling Income Works

Gambling income includes any money earned from gambling, whether it be winnings from casinos, lotteries, raffles, horse and dog races, bingo, keno, betting pools, or sweepstakes. The fair market value of non-cash prizes such as cars or holidays is also categorized as gambling income.

In certain cases, gambling establishments may be required to withhold 24% of gains for federal income tax, reporting this on a W-2G form that is given to the winner and sent to the Internal Revenue Service (IRS). If you earn money gambling and you do not receive a W-2G form from the payer, you must still report all gambling income to the IRS.

The full amount of income earned from gambling minus the cost of the bet must be included on a your federal tax return. According to the IRS, taxpayers who aren't professional gamblers must report all gambling income not included on a W-2G as “other income” on Form 1040, the standard IRS document that individual taxpayers use to file their annual income tax returns. Shared gambling income, winnings divided by two or more people, should also be reported to the IRS.

Gambling Income vs. Gambling Losses 

Money you lose on gambling can also be reported on a federal tax return, however there are some limitations. Gambling losses in excess of you win may not be claimed as a tax write-off.

In other words, if you spent $10,000 to win $4,000, you could not deduct the $10,000 expense or the $6,000 overall loss. Tax deductions can only be made on the winning sum, in this case $4,000.

Non-residents of the U.S. and Canada cannot deduct gambling losses, according to the IRS.

Advantages of Gambling Income

Another potential advantage for gamblers is that income earned is not taxable at progressive rates, unlike regular income taxes. Gambling winnings are always taxed at 24%, previously 25%, regardless of whether you won $1,500 on horse racing or $1 million at a poker table.

Non-U.S. residents, meanwhile, are generally taxed at a flat rate of 30% on their gambling income.

Special Considerations

Professional Gamblers

Professional gamblers are people who gamble regularly for their primary income and their profits are are treated differently for tax purposes. All of their proceeds are usually considered regular earned income and are therefore taxed at normal income tax rates.

Professional gamblers report their gambling income as self-employed income, which is subject to federal income tax, self-employment tax, and state income tax.

Income Tax Withholding

Gambling establishments are required to withhold 24% of winnings and report them to the IRS when an individual surpasses certain thresholds—defined as $5,000 or more from sweepstakes, wagering pools, lotteries, or other wagering transactions, as well as when winnings exceed 300 times the amount wagered.

Casinos are not required to withhold taxes or issue a W-2G to players who win large sums at certain table games, such as blackjack, craps, and roulette.

The Bottom Line

Unless you are a professional gambler, gambling income is included as income on your taxes and it's taxed at a rate of 24%. Casinos should withhold this portion of your winnings and report them to the IRS after you win a certain amount, depending on the game and how much you wagered. Consider consulting a tax professional if you need assistance.