Are Your Online Gambling Winning Subject to U.S. Federal Income Taxes?

With the tax filing deadline a little less than 2 months away (April 15, 2024), now is the right to ask U.S. online gamblers, "Are your online gambling winnings subject to federal income taxes?" The short answer is yes.

It's a good bet that most U.S. online gambling enthusiasts are unaware that any "net" winnings they might secure from gambling in any form are subject to federal income taxes. By extension, the same winnings would be subject to state income taxes in most states.

Technically, federal tax law states that every penny of gambling winnings should be subject to income taxes. However, the IRS fully understands the challenges of getting U.S. taxpayers to be honest about their gambling winnings when said gambling winnings are not tracked. With that in mind, they have established reasonable guidelines that dictate how gambling winnings are to be reported by gambling providers and taxpayers.

The Income Reporting Responsibilities of Online Gambling Operators

While it might seem complicated, the legal threshold for reporting online gambling winnings is fairly straightforward. If an online gambler hits a single wager that pays 300-1 on a bet of $2 or more, or 600-1 on a wager of $1, the online casino or sportsbook is required to report those winnings directly to the IRS. They would do that on an IRS Form W-2G, a copy of which would be provided to the IRS and the gambler.

Note: Winnings of $5,000 or more on a single wager would be subject to the immediate collection of income taxes by the online operator. The applicable tax rate on said winnings has been pegged at 24% of the total winnings.

It's noteworthy that the Form W-2G can be reported on a per-bet basis or in aggregate at the end of the year for gamblers who might have an online gambling account with the applicable operator. Should an operator fail to report a gambler's winnings under these guidelines, the operator would be subject to IRS fines. By law, online gambling operators are also required to issue hard-copy W-2Gs to customers by no later than January 31 for the previous tax year.

The Income Reporting Responsibilities of Online Gamblers

Whether online gamblers get their hard-copy Form W-2Gs or not, they are still required to report their online gambling income. In most cases, online operators will make this information readily available online.

The Form W-2Gs will show the gross winnings of applicable bets. If any taxes were withheld by the online operator, that will be reflected in Box 4 on Form W-2G.

To clarify an online gambler's tax-paying responsibilities, they are only required to pay taxes on "Net" winnings. Since gross winnings will be reported, it's up to gamblers to track their losses to offset winnings. The IRS allows an offset of up to the total gross winnings but no more. In other words, there is no such thing as a tax deduction for gambling losses.

Note: With tax day coming, online gamblers should take the next couple of months to review their gambling winnings that might have been reported for the 2023 tax year.