Taxes on Winnings: the Basics
When it comes to sweepstakes platforms, you are playing slots and table games via online gaming sites. Gold and Sweeps Coins are used to play, with Sweeps Coins giving you access to real money prizes. The IRS requires US citizens to claim all wins earned from gaming that are above $600.
If you win a prize from a sweepstakes gaming site, the amount must be added to Form 10-40. If you win larger prizes, you must add the amount to Box 1 of the IRS Form W-2G. The casino should provide you with this form based on the prize amount. If you do not receive a W-2G form from the gaming establishment where you earned the win, you must still file the prize money earned when completing your taxes.
The tax rate you will pay to the state or federal government is based on your overall income. The amount you win from sweepstakes gaming can affect the overall total of your income, which can increase your overall tax payment. If you move into a higher bracket because of the win, you may need to pay a higher tax percentage.
Key Takeaways:
- Sweepstakes wins of $600 or more must be filed with income taxes in the US.
- Winnings can affect your overall income, which can increase your tax bracket.
- Large wins may push you into a higher bracket, which means more money will be paid in taxes.
- You must report all winnings, even if you have overall losses.
- If you itemize deductions when filing taxes, you can deduct gambling losses to offset the win amount.
Exceptions
W-2Gs are issued when players earn $1,200 or more on bingo and slot machines, $1,500 or more from keno, or $5,000 or more from poker games. Wins of $600 or more and 300x the wager or the winnings are subject to federal taxes, which will also result in a form being issued.
Casinos are not required to withhold taxes or provide a W-2G form when players receive large payouts from certain table games, like craps, roulette, or blackjack. These types of games are considered to be ones of skill and not games of chance, which eliminates the tax issue.
If a sweepstakes prize is valued at $5,000 or more, the operator must withhold 24% for federal taxes. Due to local laws, there may also be a tax requirement for larger prizes on a state-by-state level.
Reporting Winnings
The W-2G form is the main component for reporting sweepstakes winnings. If you receive this form and do not report the win, the IRS will send a Notice CP 2000, which is for underreported income. The letter will explain how to rectify the issue.
Whether you receive the W-2G form or not, you must report the gambling winnings as part of your income. If you win frequently, keep track of your gameplay, as details can help with deductions and reporting accuracy.
If you have joined more than one sweepstakes site and earn over $600, you may receive more than one W-2G form. Each one must be reported to the IRS.
Once you have filled out the form with the appropriate information, the amount you pay in federal taxes will be listed in Box 4. State and local tax withholdings will go in Box 15 and 17. A regular withholding is required when you earn $5,000 or more and amounts to 24% of the total for federal payments.
Taxes can be tricky, and sweepstakes winners want to ensure they file appropriately and on time. I suggest you meet with a tax professional to discuss your options. Most offices offer free consultations so you can learn more about how to file in your state. This ensures you complete all tax forms correctly and avoid any issues with the IRS.
How are Professional Gamblers Taxed?
Individuals who are considered a professional gamblers are playing gambling games as a day-to-day job; instead of claiming winnings as ‘other income, ’ the individual will file a Schedule C, which is considered self-employment.
With a Schedule C, an individual can deduct other costs associated with doing business. This will reduce the amount of taxable income, so the professional gambler does not owe as much in taxes. Professional gamblers can deduct periodicals and other data that can be used for the profession, such as internet costs for gaming access, meals, and travel expenses if the individual attends events or tournaments.
The professional must pay self-employment tax, which covers Social Security and Medicare on the net income from gambling.
Can You Deduct Sweepstakes Losses?
Players can deduct losses based on certain rules regarding tax filing. Individuals who itemize deductions can claim gambling losses as a tax deduction. This works well for regular gamblers or big winners, but it removes the standard deduction for filing, which can lower the overall amount the individual deducts from their income.
The IRS allows players to deduct the losses up to the amount of the gambling wins claimed. Let’s say you won $3,000 but ended up losing $6,000 in total. The itemized deduction would only be valued up to $3,000, and the remaining $3,000 in losses cannot be used to reduce your other taxable income.
You must claim the $3,000 as income and then claim it again as a loss in the itemized deductions section of the tax form.
Be sure to keep a record of your losses if you plan on deducting them when filing your taxes. Keep a detailed log of the date and type of gambling activity. List your winnings and losses so you can figure out if deducting the losses is the best option for you when it comes to file.
A Practical Example
Let’s imagine you are playing slots at an online sweepstakes site, and you win a 10,000 SC prize! After redeeming the prize, you must claim the win on your taxes for the year. A 10,000 SC prize should equate to $10,000.
This amount will need to be added to your tax filing as income. Since it is a big win, you can consider itemized deductions. This would require you to keep track of how many SCs you wagered and how much was spent on any Gold Coin packages, as this might also qualify as a deduction.
The process gets tricky regarding deductions since sweepstakes gaming is a no-purchase necessary format. With a big win like $10,000, it will be best to work with a professional tax accountant to ensure you follow the law correctly when claiming your win.
It’s also important to note that wins of $10,000 or more may push you into a higher tax bracket. If this occurs, you may have to pay a higher percentage in tax payments. Speak to a tax advisor to determine the best course of action so you can pay as little as possible after a big sweepstakes win.
Sweepstakes Winnings Taxation FAQ
You can deduct losses if you plan to itemize your deductions. It would be best to speak to a tax professional to see if this option will work for your situation. You may be better off not claiming losses as a deductible, depending on the amount earned.
Tax rates and rules vary per state, so you must check the state tax agency where you live to see how much you may owe based on wins.
Most casinos will report sweepstakes winnings of over $600 to the IRS. This will result in the player receiving a W-2G. If you win and do not receive this form, you must still claim the wins on your taxes.
It can be. The wins are added to the taxable income you earn. You may be placed in a higher tax bracket if your income increases significantly. This means you will be taxed at a higher rate.
If you do not receive the W-2 G form or other filing document after a sweepstakes win, you must still list the win on your tax filing. Speak to an accountant or tax service provider about the win so they can add it for you.
