Gambling is a favorite pastime for many. Besides, who doesn’t love trying their luck on a retro slot machine for a chance to win big? Well, if you end up pulling a reel of those sweet sevens, paying taxes on your winnings might be the farthest thing from your mind. Unfortunately, gambling winnings are considered taxable income in the U.S, and the IRS expects you to report your winnings, no matter how small (or big).
While you have to pay taxes on slot machine winnings, gambling winnings have different reporting requirements. Regardless, you will need to include all your winnings on your 1040 tax form and report it as “other income.”
Let’s learn what this entails for slot machine winnings.
Slot Machine Winnings
Several things happen once you hit the winning combination on one of your favorite slot machines, starting with the machine getting locked up. After it lights up and the music starts playing, a slot attendant will visit you, demanding ID and throwing around tax terms in typical IRS fashion.
Now, the attendant will verify if you hit the jackpot and then take you to the cashier to help you claim your winnings; this is the case when the jackpots are smaller than $5000. In the case of progressive jackpots crossing the $5000 threshold, the casino technicians or the slot company, like MegaBucks machines, will come out to test the machine before you can claim your prize.
After everything has been established, you can take your winnings in cash or by check. Checks usually pay large amounts, but sometimes you will only receive a partial amount in cash and be given 90 days to decide on the remaining amount. It can either be paid as an annual annuity on the balance in several installments or a lump sum of the remaining winnings. However, it is essential to mention that if you pick the one-time payment option, you will only receive a percentage of your actual winnings and not the whole thing, so be wary.
Taxes on Slot Machine Winnings
Casinos are subject to federal taxes just like the rest of us. However, there are different requirements depending on the casino operations, types of games, and the amount of winnings. For instance, the IRS only requires a casino to report winnings greater than or equal to $1200 for slots and video poker machines. The same applies to sports betting on horse racing and games like keno and lottery.
Consequently, when a player wins an amount of $1200 or more, the casino is required to issue a W-2G form. The IRS requires the document to verify what you’ve won and whether taxes have been paid or not. Federal Withholding for a W-2G document is 24% for U.S. citizens and 30% for non-U.S citizens.
After winning an amount on the slot machines, the casino will request identification and provide you with a W-9 form. If you’re a casino regular, they’ll already have one on file for you as part of modern KYC verification protocols.
A W-9 form is an IRS document used to verify the name, taxpayer identification number (TIN), and address of an income-receiving individual. The casino uses the W-9 form to help the IRS connect the paperwork to the respective taxpayer.
Additionally, if the payout amount is less than $5000, the casino can ask if you want the federal taxes withheld. You will be required to provide the casino with two ID forms; if you decline, your winnings will also be withheld in the cashier cage. However, the casino gives time to players to reconsider providing their documents.
If you decline the W-9 form, the casino will withhold your winnings at a 28% tax rate. Federal Withholding can shoot up from 24% to 33% for non-cash prizes like cars, boats, free products, and other things.
Furthermore, individual states can also withhold taxes, so it’s better to verify the tax rules according to where you’re living. However, if you’re one of those gamblers who just have to gamble in Las Vegas, you’ll be happy to find out that Nevada does not withhold taxes.
When filing your income tax returns in April, it will help if you tally all your W-2Gs from the whole year and declare them, along with other gambling winnings. A common mistake that people make is not withholding federal taxes on wins under $5000. People have a misconception that they can use their losses against the winnings to avoid paying federal taxes. However, this is only possible if you itemize your taxes instead of taking a standard deduction.
In any case, keeping well-maintained records of your losses is better if you want to itemize. Although there are restrictions, itemizing on Schedule A helps you deduct gambling losses up to the total amount of your winnings. Even if it’s not much, deductions can help you offset your payout’s total tax amount!
Unless a professional tax planner manages your taxes or you keep records of your wins and losses, it’s wiser to have all withholding taken out of the jackpots.
Importance of Identification
You must’ve noticed that casinos demand identification with an alarming regularity. You might even think that visiting the bathroom might warrant the flashing of one’s ID (it doesn’t; don’t worry). However, the need for proper identification helps casinos curb illegal and illicit activities, avoid fraud, and reduce underage gambling.
Age limits can vary from state to state, but under-age winners will not be paid anything according to the law. However, if you forget your ID, the casino will take your photograph and hold your winnings until you can provide them with the proper identification.
Taxes are an essential addition to life’s certainties. We hope you understand that you need to pay taxes on your slot winnings. It might not be the answer you were looking for, but it’s not all bad. You can itemize to deduct tax using your losses, and remember that slot winnings less than $1200 cannot be taxed. However, you must report them to the IRS, not just jackpots!
If you found our article informative, keep following us on Enjoy Slots for more articles and how-to guides on everything related to slot machines. Having these tidbits of information can go a long way in helping you win big!