NerdWallet: Betting on March Madness? Don’t forget the IRS. Here’s how taxes work on gambling winnings.

by | Mar 10, 2023 | Stock Market

This article is reprinted by permission from NerdWallet.  As online sports betting rolls out in more states, people are encountering legalized gambling in new ways. But whether you’re wagering on March Madness from your couch or flying to Las Vegas for a weekend at the tables, you’ll have to pay taxes on your winnings.

The IRS has clear-cut rules on gambling income that predate the recent explosion of the sports betting industry. In short, the proceeds from a successful wager are taxable income, just like your paycheck or investment gains.  While you can write off some gambling losses if you itemize, that deduction can’t exceed the amount of your winnings.  “The U.S. tax code is very broad in how it defines what is taxable. Everything that you earn is taxable, unless it is otherwise said not to be,” says April Walker, lead manager for tax practice and ethics with the American Institute of CPAs. Here are some tax considerations to keep in mind if you’re lucky enough to be in the black. What is Form W-2G? Gambling establishments, including digital operations such as online sportsbooks, usually provide you and the IRS with a record of your taxable winnings.  The statement is known as the W-2G, and it includes an overview of your gambling winnings, along with any withholding you elected when you gave the establishment your tax information.  Gambling businesses are required to report payouts they made that meet certain thresholds, according to the IRS. You’ll likely receive one or more W-2G forms if you:
Won $1,200 or more playing bingo or slots.

Netted $1,500 or more from keno.

Exceeded $5,000 in winnings from a poker tournament.

Obtained $600 or more in another gambling endeavor, such as sports betting, and the payout was at least 300 times the amount you put on the line.

More: Americans have bet $125 billion on sports in the past four years as legalization push continuesAre all gambling winnings taxable? It’s worth noting that these requirements don’t cover every potential situation in which you might win a bet. For instance, your winnings might be below these thresholds, but be mindful that you’re supposed to pay taxes on anything you win. So if you get a W2-G, you can be sure the IRS knows about whatever the casino or sportsbook has listed there.  Similarly, the coworker who organized your office March Madness bracket pool is unlikely to send you and the IRS records of your participation.  If you win, though, it’s still technically income, says Walker, who is based in North Carolin …

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