Do You Pay State Income Tax On Gambling Winnings
IP 2011(27)
Connecticut Income Tax Treatment of Gambling Winnings Other Than State Lottery Winnings
- Many people seek to avoid paying taxes on as many things as possible, including gambling winnings. However, gambling winnings are considered a taxable income and must be reported when filing your taxes. All cash prizes, in addition to the value of other winnings, are taxable by the federal, and sometimes, state governments. Hence, you must list.
- Gambling income is almost always taxable income. This includes cash and the fair market value of any item you win. By law, gambling winners must report all of their winnings on their federal income tax returns.
Purpose: This Informational Publication answers frequently-asked questions about the Connecticut income tax treatment of gambling winnings other than lottery winnings from state-conducted lotteries (state lottery winnings). Frequently-asked questions about state lottery winnings are answered in Informational Publication 2011(28), Connecticut Income Tax Treatment of State Lottery Winnings Received by Residents and Nonresidents of Connecticut.
In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax. Do you have to pay taxes on the money you win gambling online? Again, the blunt answer is yes. Since the federal government, and many state governments for that matter, deem winnings from lotteries or gambling to be more than just good fortune. They are income that you generated by actively trying to obtain that money.
Definitions:
DRS means the Department of Revenue Services.
IRS means the Internal Revenue Service.
Gambling winnings means and includes proceeds from a wager placed in a sweepstakes; wagering pool or lottery (other than state-conducted lottery); payments made to winners of poker tournaments on or after March 4, 2008; or proceeds from a wagering transaction (including a wagering transaction in a casino, a parimutuel pool with respect to horse races, dog races, or jai alai). Gambling winnings also include door prizes, contest prizes, and prizes from raffles or similar drawings. Gambling winnings do not include state lottery winnings.
State-conducted lottery means a lottery conducted by an agency of a state acting under authority of state law, but only if the wager is placed with the state agency conducting the lottery or with its authorized employees or agents. State-conducted lottery includes the Connecticut Lottery conducted by the Connecticut Lottery Corporation, a public instrumentality of the State of Connecticut.
State lottery winnings means lottery winnings from a wager placed in a state-conducted lottery where the wager is placed with the state agency conducting the lottery or with its authorized employees or agents. State lottery winnings include Connecticut Lottery winnings.
1. Are gambling winnings subject to Connecticut income tax?
Whether gambling winnings are subject to Connecticut income tax depends on whether or not the winner is a Connecticut resident.
If the winner is a resident of Connecticut and meets the gross income test (below), all gambling winnings are subject to Connecticut income tax to the extent includable in the winner’s federal adjusted gross income.
If the winner is a part-year resident of Connecticut and meets the gross income test, gambling winnings are subject to Connecticut income tax to the extent includable in the winner’s federal adjusted gross income and to the extent the winnings were received during the Connecticut residency portion of the winner’s taxable year.
If the winner is a nonresident of Connecticut, gambling winnings, whether from gambling in Connecticut or from gambling outside Connecticut, are not subject to Connecticut income tax.
For information on whether an individual is a resident, nonresident, or part-year resident, see the instructions to the Connecticut income tax return for residents Form CT-1040, Connecticut Resident Income Tax Return, or the Connecticut income tax return for nonresidents or part-year FormCT-1040NR/PY, Connecticut Nonresident and Part-Year Resident Income Tax Return.
Gross income test:
A winner must file a Connecticut income tax return and report his or her gambling winnings if the winner’s gross income for the 2011 taxable year exceeds:
· $12,000 and the winner is filing separately;
· $13,000 and the winner is filing single;*
· $19,000 and the winner is filing head of household; or
· $24,000 and the winner is filing jointly or qualifying widow(er) with dependent child.
A winner’s gross income includes all income received in the form of money, goods, property, and services not exempt from federal income tax and any additions required to be reported on Form CT-1040, Schedule 1. Gross income includes but is not limited to compensation for services including wages, fees, commissions, taxable fringe benefits, and similar items; gross income from a business; capital gains; interest and dividends; gross rental income; gambling winnings; alimony; taxable pensions and annuities; prizes and awards; income from partnerships, S corporations, estates, and trusts; individual retirement account distributions; unemployment compensation; and federally taxable Social Security benefits.
If a winner’s gross income does not exceed the applicable gross income threshold and Connecticut income tax has been withheld from his or her gambling winnings, the Connecticut income tax will not be refunded to the winner unless he or she files a Connecticut income tax return.
2. Are gambling losses deductible?
Gambling losses are not deductible for Connecticut income tax purposes even though, in certain circumstances, they are deductible for federal income tax purposes.
3. May a resident or part-year resident claim a credit against his or her Connecticut income tax for income tax paid to another state on gambling winnings?
4. Will Connecticut income tax be withheld from gambling winnings?
Connecticut income tax will be withheld from a payment of gambling winnings if all of the following conditions are met:
- The payer maintains an office or transacts business in Connecticut;
- The payment is subject to federal income tax withholding; and
- The payment is made to a resident or to someone receiving the payment on behalf of a resident.
For example, a dog track located within Connecticut must withhold Connecticut income tax from a payment of winnings only if the payment is subject to federal income tax withholding and the payment is made to a resident or to someone receiving the payment on behalf of a resident. Also, if a payer of gambling winnings is a nonprofit organization maintaining an office or carrying on activities in Connecticut, the nonprofit organization must withhold Connecticut income tax from a payment of gambling winnings if it is required to withhold federal income tax from the payment and the payment is made to a resident or to someone receiving the payment on behalf of a resident.
The fact that federal or Connecticut income tax may have been withheld from a winner’s winnings does not excuse the winner from filing a federal income tax return or a Connecticut income tax return.
5. Is a winner required to provide his or her name, address, and Social Security Number (SSN) to the payer?
6. How is a winner’s residency status determined?
7. What if there is more than one winner?
8. Will payments of gambling winnings be reported to DRS?
If a payer of gambling winnings maintains an office or transacts business in Connecticut, the payer is required to report payments of gambling winnings to DRS if the payer is required to report the payment to the IRS and the payment is made to a resident or to someone receiving the payment on behalf of a resident.
The fact that a payer may not have been required to report a payment of gambling winnings to the IRS does not excuse the winner from reporting those winnings for federal and Connecticut income tax purposes.
For More Information: Call DRS during business hours, Monday through Friday:
- 1-800-382-9463 (Connecticut calls outside the Greater Hartford calling area only); or
IP 2011(27)
Income Tax
Gambling Winnings
Issued: 01/04/12
Gambling Winnings Subject to Tax?
With all sports betting, casino, poker, daily fantasy, and state lotteries, is the government entitled to a fair share? The most accurate answer is, you can bet on it. While that fair share might cause you to grumble under your breath, the fact is gambling winnings are taxed.
Now, you might wonder if you can use your losses at the table or on the ballgame as a write-off. Here is a detailed guide that addresses all your questions about taxes on gambling. We’ll discuss how winnings are taxed, some state and federal requirements, plus which forms you need to use to report gambling income.
How Are Gambling Winnings Taxed
Answering the question about how gambling winnings are taxed involves looking at different situations. Of course, the guidelines for the federal income tax process are standard across the country.
States have various tax structures, so you need to inquire about those for the state in which you file your state taxes. Here is an overview of both federal and state guidelines for how gambling winnings are taxed.
The first thing to know is the difference in how you generated your winnings. If you win over $600 at the horse track, $1,200 on a slot machine or in a bingo game, $1,500at keno, or $5,000 or more at a poker table, you must report these winning to Uncle Sam.
For this reason, most tracks and casinos require your Social Security number before you’re paid out on any big cash win. You also must complete an IRS Form W2-G, and report the amount you won on this form.
You might immediately think this is all overkill because, in most instances, a casino is going to deduct 25% before they pay out your winnings. You’ll get a receipt, of course, since these monies will be earmarked for the US Government Treasury.
Now, what if you win an amount of money gambling that is less than those previously listed? According to the IRS, you are legally obligated to report these winnings as income on your federal taxes.
To be on the safe side, always report the money you win gambling, whether it’s on a horse, a puppy, a spill out from a slot machine, or big pot when you’re holding a royal flush. Gambling income is taxed federally.
Many states with an income tax will also require you to report winnings, especially those where casinos and sportsbooks are becoming legal. Of special note, the only state for years where casino gambling was legal, Nevada, did not tax gambling income. Check with your state to determine whether you need to report your winnings.
There are often questions about how any money you win gambling online can be taxed. Online gambling taxes do have a few gray areas. Many of the current gambling venues are striving to offer online sportsbooks, so this type of gambling and how taxes apply is important.
What the IRS does is specify what is taxable and what is non-taxable income. In the world of daily fantasy sports, there are players who essentially earn their living by playing DFS contests. In these instances, you should take precautionary steps when it comes to taxes and your winnings.
Same concept will apply if you are in a state that eventually allows online sports betting through a sportsbook. IRS Publication 525 explains in detail what constitutes taxable and what is deemed non-taxable income.
Gambling Winnings will rarely fall under the category of non-taxable, so be prepared to treat online winnings from any type of gambling in the same manner you handle any money you win at a physical casino or sportsbook.
But, How Will They Know I Won?
One of the huge motivating factors behind states’ eagerness to legalize sports betting is the lucrative potential of such operations. Every state that allows casino gambling, or promotes a statewide lottery, has these same financial aspirations.
To risk that the IRS or state government won’t find out about your gambling profits is taking a gamble bigger than the risk you take to bet in the first place. Obviously, the state is going to know about every ticket that wins in their own lottery. Be confident that the federal government is going to get word of those winners as well.
When it comes to gambling, each state has some form of a gaming commission that oversees all operations. One of the stipulations to get a licensed casino is that all winners will be reported. To think that you might somehow circumvent this reporting process is naive.
If you do ignore gambling winnings when filing your taxes, you could be pursued for tax evasion. The consequences of being found guilty of tax evasion for failure to report gambling or lottery winnings is the same as if you attempted to evade paying taxes on any other earned income.
Report your winnings, because you won’t like the consequences of not reporting them. Casual gamblers can get by with a few receipts. One disadvantage of keeping limited records will befall you if you get lucky and win big.
Without strong receipts for previous losses, you will be unable to document these as deductions to offset the taxes leveled against your winnings. For anyone who takes pleasure in gambling frequently, keep your receipts and maintain at least a basic ledger of your gambling activity.
You don’t need to account for every nickel pumped into every slot machine, but documentation of total wins and losses will prove helpful when submitting your tax documents. Here are two of the basic IRS forms used to report winnings from gambling, including the standard personal income tax form.
• U.S. Individual Tax Return 1040
• IRS Form W-G2 Certain Gambling Winnings
Maintaining good records of your gambling activity will allow you to itemize your losses and deduct them from your final tax bill. However, you can also apply the same tax withholding structure for your gambling winnings that you apply to other types of income.
The income tax rate is 24% on all types of gambling profits, but there are certain sources of these winnings that are automatically subject to withholding tax. Follow the IRS guidelines to have a preset percentage taken out of your winnings.
This will not only help you avoid mistakes due to lapse in memory but can also eliminate being hit with a huge tax number at the end of the year. Here are some more frequently asked questions about gambling winnings and paying taxes on them.
Frequently Asked Questions About Gambling Winnings and Taxes
Here are some frequently asked questions in relation to gambling winnings and taxes.
1. Are you required to pay taxes if you win gambling at a physical casino?
The short answer is yes. A lengthier explanation simply involves the previous example discussed in how gambling winners are taxed. The law specifies that you must report all income from gambling games of all types.
While the guidelines on when that income becomes taxable are different for various games, the rules read that you must report all winnings. That will include any money you win at a physical casino, including an online sportsbook. Remember, you can always counter winnings by reporting losses as well. Keep your records organized.
2. Do you have to pay taxes on the money you win gambling online?
Again, the blunt answer is yes. Since the federal government, and many state governments for that matter, deem winnings from lotteries or gambling to be more than just good fortune. They are income that you generated by actively trying to obtain that money.
The IRS doesn’t care that you open up your handheld device to play a slot machine trying to dispense some extra change in your account. If the online slot machine produces a winner, they want their cut.
3. Do you owe taxes if you win playing daily fantasy sports games?
Not to sound redundant, but the answer again is yes. Be mindful, that to comply with federal law, daily fantasy sports providers are going to document your winnings. Any attempt to try to evade paying taxes on DFS winnings might land you in hot water with the IRS.
As with all other types of gambling, report your DFS winnings as well. DFS websites such as DraftKings and Fanduel will report winnings, especially big-ticket tournament winners. Again, federal law mandates reporting all income, including DFS prizes. Check with your state government for reporting requirements there.
4. Do you have to pay taxes on gambling winnings even if you’re not a resident of the United States?
While this question involves a little wider degree of supposition, the answer is still an emphatic yes. Even nonresidents who win at casinos or with a winning lottery ticket must pay a percentage to the federal government. Nonresidents who win at a casino must complete and submit IRS Form 1040NR.
5. Can gambling losses be written off on your tax return?
The first step is to report some amount of winnings from your gambling. This is why a ledger of your gambling activity can be useful. Once you acknowledge your winnings, you can itemize deductions for all your losses as well.
6. Do you still owe taxes if you leave all your deposits and winnings in your account?
Just because you do not make any withdrawals during a tax year, that does not negate the fact that you won. If you won money gambling during the tax year, it is a wise decision to record these winnings, and then report them according to the guidelines mentioned.
7. Are team or group gambling bets still taxed?
The same tax system that is applied to individual winnings earned from gambling, applies to any money you may win as part of a betting team. If you bet using the team concept, it is recommended you keep detailed records. The consequence is to be hit with a tax for the entire cash payout when you actually only received a percentage.
8. When you’re retired, do you still need to report winnings from gambling?
A large percentage of the casino gambling community is retired persons. You may think that since you’re retired, or on some form of fixed income, that you may not need to pay taxes on any money you win.
In all honesty, you can even be hit with a tax for winning a big bingo jackpot. If you’re retired, reporting gambling winnings can be even more important. By not reporting your gambling winnings, you can create a number of headaches for yourself.
Do You Pay State Income Tax On Gambling Winnings Rules
You can be bumped into a different tax bracket, or have your medical coverage and premiums changed because of unreported income from winning at the poker table. Be dutiful with your gambling activity, especially if you’re enjoying your retirement years.
These are the basic principles of how gambling winnings are taxed. The most important principle to follow is to always report your winnings. When the alternative is to get hit with a surprise tax bill, honest consistency is the best policy.
Maintaining good records is also a worthy suggestion. Receipts can be used to itemize and deduct losses, plus you’ll know in advance how much tax you will owe on any winnings. While it might seem frivolous to keep records if you only gamble occasionally, there is always that possibility you hit a big cash jackpot.
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