Taxes on Gambling Winnings - Interview With an Expert (2023)

Introduction

Steve and Matt Bourie, from the American Casino Guide book, interview Russell Fox, one of the nation's leading experts on gambling and taxes.

Fox is the co-author of "Tax Help For Gamblers", along with Jean Scott and Marissa Chen. Look for it on Amazon.

They discuss how gamblers, such as: slot machine players, table game players, sports bettors, and online casino players, can be treated differently by the IRS for tax purposes as far as requirements for receiving W2G forms.

They also discuss how gambling losses can be deducted, and what kind of information is needed to provide proof of losses.

They also talk about how, some gamblers could be responsible for paying state and city taxes on their gambling wins in addition to federal taxes. They also put a special emphasis on how gamblers could very easily be taxed on money that they actually didn't win!

Plus, more special tax questions are answered in the discussion!

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Video

Foreign here from the American Casino guide book, if you're not familiar with us, please be sure to visit our website at American casino guidebook.com.

And joining me today is my son who also works at the American Casino guide book website, Matt, bori, how's it going everybody.

And today we are interviewing, uh, Russ Fox.

He is a accountant that specializes in gambling taxes.

How are you doing today? Russ I'm doing well.

Thanks.

So I.

Guess, uh.

Let's just start out with the basics in case.

Anybody has never, uh gambled before how are gambling winnings treated for tax purposes? Well, all income is taxable unless Congress exempts it.

So you are supposed to add up all of your gambling winning sessions.

If you're an amateur Gambler, put them on your tax return as other income on schedule, one and your gambling losses up to the amount of your winnings can be deducted as an itemized deduction on schedule, a you do have to itemize your deductions to get gambling losses and I, uh.

So then I guess, uh that sort of answers my next question, which was how are winnings reported and can you deduct your losses? So you just so you're saying that if you it, every Gambler should be keeping a uh, uh notes.

And if they go to the casino and they win 20 bucks.

They at at the end of the day, they've got to come home and write that down and submit it to the IRS.

Then, yeah, that is what they are supposed to do I'm, not going to comment on whether people are reporting, 20 wins, but they are supposed to also.

Unfortunately, there are some states that do not allow gambling losses, but people who live in the wrong States.

And some of them have legal casinos like West, Virginia, um, you're, just out of luck.

Yeah, those are real bit and I.

Think one state changed it.

Uh.

Last year.

Did it says was it Michigan or some correct Michigan now allows gambling losses? Okay for those people.

So if you sign, because every anytime you get a jackpot of 1200 or more on electronic gaming machine in a casino, you would be issued a w-2g correct that is correct.

So at the end of the year you have to declare that as income, well, you have to declare all income.

You are supposed to declare the non-jackpot winnings too.

If you go in a casino and win fifty dollars, you are supposed to declare that fifty dollars on license.

The only advice I can give is you declare all your income? Okay, you declare all your income.

But most people at the end of the year they are net losers.

So so how is that treated? Do you I mean? Do you have to say every time you win? So okay, I won twenty dollars here and then I lost.

Uh.

Fifty dollars here.

So I'm down thirty dollars and that's is that how you do it believe it or not, yes, you take your gambling winning sessions.

So the days you win, presumably against one session each day you would declare those as other income on schedule, one you're, gambling losing sessions up to the amount of winnings.

You cannot stick gambling losses in excess of winnings it's, specifically prohibited, they're, an itemized deduction on schedule, a hmm, all right now, uh, as we we have sort of beat around a lot of people probably don't do that are there is the IRS have you heard stories of uh, the IRS going after uh, small-time, gamblers for not uh doing what they're supposed to with a gambling log throughout the whole year.

No I have never I mean.

It could come up in an audit where something else leads to it I have seen Big.

Time gamblers get hurt on this.

Um there's a case out of Connecticut where somebody was gambling at uh, I, can't, remember, if it was Foxwoods or mohegan's son, but he generated currency transaction reports in the millions of dollars and declared something like 300 or 3 000 of gambling winnings and that Beggar's belief.

And yes, he got caught, huh? Well, I mean, he could he could have lost it.

All right too.

So, yeah, but yeah, but millions of dollars, that's, uh, all right? Well.

Well, let me ask this please because we mentioned before that on an electronic gaming machine, whether it's a slot machine or roulette machine or a Kino machine because I have these electronic, uh, it gets very confusing.

Okay.

So if it's an electronic gaming machine, no matter what kind you get issued at w2g? If you win, twelve hundred dollars or more the jackpot is twelve hundred dollars or more correct? Correct? Okay? And they don't make a distinction whether it's a table game electronic version.

So if it was blackjack or or roulette or craps, whatever, if you're on a machine, it's 1200, where you get the w2g.

So now, how is it? How are table game? Players treated? Do they get a w2g also, no in general.

They don't.

There are some exceptions there's.

Some like proposition bets.

You can make at, um various games that have extreme odds where w2g might be issued.

But the general rule is you have to win 600 or more at odds of 300 to one or more most table game bets, um are one to one or two to one or six to one like, uh, certain things and craps or even 30 or 50 to one.

But 300 to 1 takes like, oh, the jackpots the progressive jackpots and like the ultimate Texas Hold'em or various other kind of table games like that.

Yeah, I saw somebody one time I was playing at Sam's Town in Vegas.

They hit the progressive for uh, paiga poker.

And they won like it was half a million or a million dollars or something while I was at the table that was pretty cool.

So it'd be something more like that right, that's.

Correct now, uh, what about online casinos like if you're playing at a table game at an online casino is that treated like a live table game in a casino or is that treated more like a slot machine in a casino slot machine in a casino it's, an electronic game.

And there are definitely the casinos have to issue w2gs, and they are gotcha.

So even if it was like one of those ones where they have the live dealer, it's, still just considered an electronic table game, they're, electronic games, I don't as far as I know, they're electronic games.

Now what about sports betting because because how is sports betting treated? And when do they issue a w2g in sports betting the same rule of 600 of winnings at 301 odds or more, which basically means it has to be like prop bets on the Super Bowl.

The first play will be a safety, which probably is two thousand to one odds, um things like that, but they're, very very few w2gs issued for sports betting.

Now one person had asked us the question he said, he was playing I.

I think, uh, I, forget what game it was electronic roulette or something and uh, or maybe it was craps and it's.

Somehow he won twelve hundred dollars, but he bet six hundred dollars.

So he didn't really win.

Twelve hundred dollars.

He won six hundred dollars, but he got his big attack.

Yeah.

So you got 600 in his bet back 600, but he got issued a w2g for twelve hundred dollars.

So how do you treat something like that? Well, there's a court case, um called Park, V, commissioner it's, uh, from the U.S court of appeals for the District of Columbia.

The second highest court in the United States by then, uh, judge Kavanaugh, who is now on the Supreme Court and it's, one of the most Gambler friendly decisions ever.

And it allows basically the session method.

So let's assume that you're only gambling, you get a w2g for 1200.

You only won 600 you're allowed to put down six hundred dollars.

You should attach a note to your return.

The IRS has a form form, 8275 it's, a statement where you explain what you're doing.

You could even just attach a why you did this just a piece of paper or a PDF document if you file electronically, but it is absolutely allowed that you pay tax on your winnings, not what the paperwork shows because this the casino did the right thing.

The payout is twelve hundred dollars.

Twelve hundred is the amount of the w2g under current law.

However, the person really won 600.

right? But, but again, you can't do that unless you itemize your taxes, correct? No, you can do that.

Oh, for you are allowed to let's say, you're told, oh, twenty thousand dollars your winning session.

Total is fifteen thousand.

You can put down.

Fifteen thousand Azure winnings.

You should attach a statement to your return explaining the difference because the IRS is not IRS matches.

And the w2g total will not match you're likely to get an IRS notice.

But you are completely in the right.

Assuming you've got records to back that up, uh, I, didn't realize that I thought you always had an itemize to uh to do that.

So that that's a good ruling that's, not a gambling loss to get your gambling losses to offset that hypothetical.

Fifteen thousand of winnings there.

You do have to itemize.

Okay.

Gotcha now.

So let me ask you this do you think uh with online online casinos are getting much more popular now because they're getting legalized in many different states.

Now, I think it's up to like 11 or something now, do you think it's going to become a bigger issue? Where people if they forget or choose not to? Uh do the smaller wins and and record those do you think like that's going to become more of a problem or not more of a problem, but where the IRS is going to be going after people for that since technically, they are owed the money it's going to be in certain States.

Some of the states have reporting requirements to the state Departments of Taxation or Department of Revenue.

And so let's say, John Smith is gambling at some online casino, I'll use Michigan.

But I don't.

Remember, if Michigan has this rule or not doesn't report, his 5, 000 of winnings.

But the Michigan Department of Treasury knows about it.

Well, he's going to get a love letter from Michigan saying, uh, where's, our gambling winnings on your tax return and have to respond.

And the states do share with the IRS.

In fact, all of the 50 states only one does not share information with the IRS and it's Nevada, which we don't have a state income tax.

Yeah.

So, uh, there's also, there's been Talk of the threshold for W-2 going up from 1200 to 5 000 because to adjust it for inflation because I believe it was 1977.

I think it was.

We looked this up before the interview when they set that twelve hundred dollar threshold.

And I know, we did a video with you a few years ago.

You said, there was no chance that it was going to go up to the 5 000, uh, do you still think that do you think there's a chance they're going to raise it? It would have to be Congress that would raise it.

The IRS is not going to the last proposal was to drop it.

Lower it to 600 or Jesus.

Okay, the chance of them raising it is, oh, the IRS voluntarily, same as it's snowing in Las Vegas in August, not likely to happen.

But one of the problems that and I think the most common tax situation that people find themselves in is and we're going to talk about I just want to talk about the overall fairness of this tax system, because I think it's it's, very unfair to Gamblers it's, most people, and they don't realize until they happen to win a jackpot.

So okay, let's say, uh, they win a jackpot for fifteen hundred dollars.

And so and so you know, they're real happy and everything.

But by the end of the year, they've lost the 1500 back, plus two thousand dollars more.

So when it comes time to do their taxes, uh, uh, you know, they they follow this w2g.

So they have to declare what this income and they're going to find out they're going to have to pay tax on this.

And if they don't itemize since uh, the standard deduction is so high relative to the uh, you know, unless you have a lot of itemized deductions, they wind up just having to pay tax on on money that they really didn't win, because they lost it back.

So what are your thoughts on that? You're, absolutely correct, but it's going to take Congress to change it and and that's, not that simple, I mean, it I'm all for like there are two states that allow gambling winnings and losses to be netted together, uh, Pennsylvania and New Jersey.

So if you are a resident of those States for state tax purposes, and you have say, 3, 000 of gambling, winnings and 3 200 of losses.

You don't have to pay a penny in tax that's good.

But unfortunately, the chance of our Congress, which is desperately looking for more money to change this, not high right now.

Let me ask you if a since we're talking about U.S taxes here, if a foreign citizen, somebody that does not uh is not a U.S citizen and does not live in the U.S say somebody from Europe somewhere is is visiting Vegas for a vacation.

And they happen to hit a w2g.

Do they have to pay, uh taxes on that as well? Well here we get a yes and a no, um it's going to depend specifically what countries they're from does that country have a tax treaty with the U.S that exempts gambling.

And there are many such countries that do, for example, the United Kingdom anybody from England who comes to the United States and wins a slot jackpot there's.

Nothing withheld, no tax at all because the U.S UK tax treaty specifies that.

And if they're from the UK they're, even better off, because the UK does not tax tax, uh, gambling, winnings, however, let's say, they're from Liechtenstein, which doesn't have a tax treaty with the U.S.

Now, 30 percent would be withheld and I don't know, anything about liechtenstein's tax system, I chose that country, mainly because I didn't have to look up that whether they had a tax treaty or not mm-hmm.

So some of the countries don't and you're just out of luck.

You lose 30 percent.

Okay.

So you can apply to get that 30 percent back as as a foreign citizen.

Only residents of Canada can the U.S Canada tax treaty, specifies that a Canadian can file a form, 1040 NR and get their uh, the amount of their of their winnings, whatever they have in losses back, um.

Okay.

Well, well, I got one before we move on I got a question.

There, I know, you don't know, the exact answer, but like ballpark number are there a lot of countries that have that tax treaty where with uh, the US where they wouldn't have to pay or is it only like like? Are we talking like 10? Are we talking like 50? Do you know, like just a ballpark number it's like 15 to 20 countries that have the tax treaty with the U.S? Um, there is a list in an IRS publication, uh, I want to say, it's publication, 515.

So anybody from a non-u outside? The US can look this up now, the US and most foreign countries do have sharing information where information about income from the US is shared with the other countries, tax agencies, um.

And the US also gets that so it's getting harder and harder to avoid taxation.

All right, I.

I want to ask, uh, we spoke briefly before about, uh, some states will allow you to deduct losses and some won't allow you to deduct any losses.

So now I I think people aren't aware like if if I go to Mississippi and and I go to Mississippi and I, win a jackpot, uh, uh, I have to pay the state of Mississippi, even though I'm not a resident of the state of Mississippi.

And it depends each state is a little different, but I think.

And we put it on our website for each individual State.

What the tax situation is, uh, I think, it's three percent in Mississippi.

And that tax is is a non-refundable tax, uh.

So even though I'm not a resident of Mississippi, if I happen to win a jackpot, there 1200 or more you're going to pay three percent to the state.

Now there are other states where as a resident you have to, uh, declare the income and uh, you know, pay taxes on and I.

Guess? Like you say, some will now allow you to uh, well, Michigan now allows you to deduct your losses, but some won't.

But even if you're visiting that state you're a non-resident of that state, you are subject to that state tax.

When you go there are you not in general? Uh, yes.

And it goes back to what is called The Jock tax, which happened after uh, Michael, Jordan of the Chicago Bulls played in a basketball game in Los Angeles.

And the California's Franchise Tax Board.

The state tax agency wondered why he didn't pay tax that's, what led to States taxing non-residents.

And so let us assume you, uh, Gamble in Iowa, which will do automatically withhold.

And you are a resident of say, Pennsylvania, okay, you're going to have tax withheld you're going to need to file an Iowa tax return for that.

Gambling activity let's say, you owe money to Iowa.

You ended up ignoring the withholding you might or might might get a refund.

You might not, but you had gambling tax you actually, the state of Iowa did not refund all the money that was withheld let's just say it was fifty dollars.

Pennsylvania is required to give you a tax credit for the double taxed income.

Your state of residence is required to it's not optional.

There is a U.S Supreme Court case, mandating this.

So you end up paying the higher of the two states.

Marginal tax rates.

The Joker is Mississippi, Mississippi's, gambling taxes, a tax on gross receipts, not income.

So that basically you're just out that if you win money in Mississippi you're going to only win a portion of that money, um say, 97 percent of it is yours and three percent of it goes right back to Mississippi.

But now also there are some cities that in addition to the state tax, there are some cities.

And we mentioned them on our website, American Casino guidebook.com, especially Ohio Ohio has quite a few cities there that also tax you.

If you win a jackpot in that, City I think it's, uh, Cleveland, Columbus and Cincinnati and and Toledo in certain instances you got any uh.

So again, if you're if you're a non-resident of that city or state and you win you're, gonna have to pay city tax too, correct.

No are those refundable or no? Well you again, you generally you're, not going to be able to refund them enough on the city return because Ohio is one of the states that doesn't allow gambling losses.

So an amateur Gambler, who has a say a one thousand dollar jackpot in Cleveland is gonna whatever Cleveland's Municipal tax rate is again, though a tax credit can be taken on your home state.

If your home state has a state income tax, you can take it for all taxes based on income.

And this comes from a U.S Supreme Court decision.

But you can't apply it against the federal income tax return.

Uh, if you are deducting taxes, it is an itemizable deduction taxes paid is an itemized deduction on schedule, a and that's based on taxes paid during the year.

But again, that's, if you itemize your deductions and don't, take the standard deduction, yeah, that is correct.

Okay.

So that does it for the questions we have.

And as I said earlier, we had a video from you a year or two ago and I I went back.

We went back through the comments and pulled in some questions that the viewers had for you that we want to run through real quick at the end here one person said, what counts as income I've won a hundred and twenty four thousand, but I've lost 121 000.

So my profit is three thousand does this make my gross income for the year? 124 000, plus my working wages or just 3 000, plus my working wages.

If his session results are 124 000 of winning sessions and 121 000 of losing sessions is adjusted.

Gross income would be the 124 000, plus his wages.

And he'd be able to take an itemized deduction of 121 000.

First, gambling, losses, gotcha, okay.

And then, uh, one more there question there was I've heard about asking the casino to withhold money from the jackpot to more or less prepay your taxes on a jackpot do all casinos offer this.

Uh, I've.

Never seen a casino not offer.

Yes, you can have, uh, taxes, absolutely, um.

You can say, I'd, like ten thousand dollars of my 100, 000 winnings for federal income tax gotcha.

And then they also said, we've heard about casinos discouraging players from doing this, have you heard of that I haven't, but it wouldn't Shock, Me, Oh, okay.

Why would they discourage them just because it's a pain in the neck more paperwork for the casino more paperwork for the casino? Yes? Okay, understandable all right Russ.

If if people want to get more information about you and your tax services, wherever they go to find that our website is claytontax.com.

My email address is RC, Fox, claytontax.com, all right.

Great.

Thanks all right.

Russell.

Fox.

Thank you very much for joining us today.

Uh, if you like the video, give it a thumbs up and don't, forget to hit that subscribe button.

Yeah, so you don't miss out on any of our other great videos.

Yeah, this was a very complicated subject.

And you gave us some clarity into it.

So we appreciate it and uh, thanks everybody for watching hope you enjoyed it and best wishes for good luck in the casinos.