Laws regarding your tax obligations for your gambling wins vary from one country to the next but, regardless of where you live, you need to know if, when and how to declare your gaming machine and live dealer casino winnings when you file your yearly tax return.
What to Check
For brick-and-mortar casino, online casino and live dealer casino wins, you need to check your jurisdiction’s laws regarding multiple issues. They include:
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Taxation on Winnings – in some countries, winning are tax-free but in other locales, they are considered to be taxable income. The question about whether you need to pay taxes on your winnings may also be determined by the type of gambling. For instance, there may be different laws regarding taxation on sports betting than there are relating to winnings from casino gaming and lottery wins.
- Tax Deductions – in some jurisdictions, you can deduct gambling losses from your winnings when you calculate taxable income. That’s not true across the board. The rules vary and there may be limits on the amount that can be deducted.
- Professional vs. Amateur – In some locales, if you engage in gambling as a profession, the rules regarding the amount of taxes that you have to pay and the procedures for reporting differ than those for reporting and paying on amateur wins.
Online Gambling
Online gamblers have additional complexities to consider, especially because many of these casinos are hosted in countries different from their own. Taxation of online gambling winnings may depend on both the location of the gambling operator and the player’s country of residence.
Online operators may be required to pay licensing fees or fees based on their profits or revenues or Value Added Tax (VAT) or Goods and Services Tax (GST) but those taxes are paid by the operator to the host country and the player has no obligation to pay those fees. As of now, there are no requirements anywhere in the world for online operators to withhold taxes on gambling winnings.
In some countries, social or charitable gambling is exempt from taxation.
A look at some countries and their taxation laws:
United States
The IRS considers any money that you win through wagers as taxable income. This evaluation is also applied to items that you might win which the IRS estimates based on fair market value of any item that you win.
Gambling income includes winnings from racetracks, game shows, lotteries, and bingo as well as casino wins and card game wins. Gamblers may be able to deduct gambling losses when they itemize their deductions on their yearly IRS file using Form W-2G or Form 5754.
U.S. resident gambling income is taxed at a flat rate of 24%, regardless of the amount won. On any win above $600, the casino will issue you a W-2G form. If you win more than $5,000 on a wager, and the payout is at least 300 times the amount of your bet, the operator is required to withhold 24% for income taxes.
Many US states also tax gambling wins but not all – states that do not tax gambling wins include Florida, Alaska, Delaware, California, Tennessee, South Dakota, New Hampshire and Nevada.
If you live in one state but win in another, you must file the federal W-2G return in the state in which you won, even though you are not a resident of that state. Then, you claim the winnings in your home state where you pay your state taxes.
If you win when playing online, the full amount of your wins for the year must be reported on line 21 of Form 1040. To itemize deductions, deductions for gambling losses are reported on line 27 of Schedule A (Form 1040).
Canada, Australia, New Zealand and the UK
In all Canadian provinces, Australian States, the UK and in New Zealand, gambling payouts are tax free. Gambling operators pay taxes on their operations. If you are a citizen of another country, you may be expected to report your Canadian winnings on your tax return and pay taxes on those payouts.
Highest Tax Rates
Some of the countries that have extremely high taxes on gambling include Germany, France, Australia, Luxembourg, Macau, Poland, Kenya and Denmark.
Other countries tax gambling income at a relatively low rate including Portugal, Singapore, Russia, Finland, Belgium and Italy
Will the IRS Know?
The question comes up, if you’re gambling through an offshore operator, or in a different jurisdiction where gambling income is not taxed, will the IRS know that you’ve collected a payout if you don’t report it?
Currently, there are no systems for requiring that an online operator or a casino in a non-gambling tax country reports a US citizen’s gambling wins. But if the payment is enacted electronically, there’s a trail that investigators can find which will allow them to determine that you’ve accepted gambling payouts and have not reported that income.
For that reason, it’s important to adhere to the laws of your country of residence and pay what you legally owe.
