The deadline for filing 2021 income tax returns is fast approaching, so there are a few things to know about online gambling and taxes.
New Jersey online casino players need to be aware that all winnings are taxable, and Uncle Sam wants a cut.
According to the Internal Revenue Service, gambling winnings “are fully taxable and you must report the income on your tax return.”
The IRS does not explicitly mention online betting on its gambling information webpage. However, the agency’s wording of what qualifies as income makes clear that online gambling taxes will be paid.
New Jersey also taxes gambling wins as income.
The state gambling income tax applies to residents and non-residents alike, as long the win took place in NJ. That includes all internet gambling winnings since a bettor must be physically present in the state to play NJ online casino games or place a mobile sports wager.
About those online gambling taxes
The federal tax rate on gambling wins is a flat 24%. In New Jersey, the tax rate is 3%.
Online gamblers can expect to pay every penny owed on taxable winnings. Unlike in-person wagering, where someone can remain anonymous, every bet made online is tracked and recorded.
All state-licensed gaming entities, including online operators, are required by federal law to report certain gambling winnings to the IRS on Form W2-G. The minimum win for this to happen depends on the type of gambling, as indicated below:
- Horse Racing: Winnings exceeding $600 on a $2 wager or 300x any larger amount wagered.
- Slot Machines and Bingo: Winnings (not reduced by the amount wagered) that exceed $1,200.
- Keno: Winnings (reduced by the amount wagered) that exceed $1,500.
- Poker Tournaments: Winnings (reduced by the amount of the buy-in) that are more than $5,000.
- Sports Betting: Winnings exceeding $5,000 in a calendar year.
What about deductions?
Paying taxes on gambling winnings is one thing. But what happens when luck goes the other way?
Well, there is always the option to deduct gambling losses.
Of course, there’s a catch: a gambler can only deduct losses up to the amount reported as winnings. Meaning, a player cannot report losses that exceed annual winnings.
All types of gambling wins and losses can be combined for tax purposes.
The federal government recently changed the amount of the standard deduction, so individual gambling deductions may not be worthwhile.
Be sure to speak with a tax preparation professional with any questions before filing.