We don’t want to upset you or put you under any extra stress, but your taxes are about to be due. And all those gambling winnings? They’re going to have to be figured in.
Federal tax returns must be postmarked by April 18, but don’t worry, we’re here to help you understand what’s in front of you when it comes to claiming your gambling winnings on your taxes.
A full breakdown of the relationship between taxes and gambling winnings is available. The CliffsNotes version is below.
And if you have bigger, or specific questions, please contact a tax professional.
Are gambling winnings taxable?
The state of Michigan didn’t approve regulated online gambling just so you could have fun.
Sure, that’s an added benefit, but the main driver for the government was the creation of tax revenue. There’s already been plenty of that, with online casinos and poker bringing in about $201.7 million in state tax revenue in 2021, and online sports betting bringing in just under $7.3 million.
Now, it’s your turn. Your winnings are taxable. All of them.
The federal tax rate on gambling winnings is 25%, while Michigan’s rate is 4.25%.
If you’ve hit a big jackpot or a large wager, you should already know this. For any win of $5,000 or more, the casinos are bound to collect 25% for the government.
There are some other scenarios that force a casino’s hand:
- The total winnings, or combined bet and profit, on a slot machine exceed $1,200.
- A player’s keno profit on a game is more than $1,500.
- A poker player wins more than $5,000 in a tournament.
- A game’s profit is more than $600 and is 30 times or greater than the bet amount.
In each of these cases, casinos report the win to the IRS with Form W2-G.
Do small gambling winnings have to be claimed in tax returns?
Your smaller winnings aren’t going to be hit automatically, so it’s up to you to report them.
Here, we’ll go ahead and quote ourselves:
As is the case for essentially anything to do with the IRS, there are forms to fill out. The first thing to do is report the income on the IRS Schedule 1, which is the form for additional income and adjustments to income.
On that form, look for Line 8 in Part I, which is entitled “other income.” Here is where you will list your winnings and their source. “Gambling” or “casino” are fine for explaining from where the money came in most cases, although you can be more specific regarding the casino and date if you’re worried about attracting attention.
Once you’ve entered the information onto your Schedule 1, you’ll need to put the same total onto line 7a of your regular tax return. You will then be able to add the winnings into your overall taxable income.
Can you deduct gambling losses on your taxes?
It’s a rarity that a government body moves quickly for the people, but the Michigan legislature did just that at the end of 2021.
Thanks to a bill passed and signed this past December, you can deduct your gambling losses on your state tax return. This was something you already could do on your federal return.
As part of your federal return, you can fill out a Schedule A form, which allows you to list deductions. Gambling losses go into: Box 16 — Other Itemized Deductions.
Two things to keep in mind here: 1. You cannot claim losses above the amount of winnings that you claimed; 2. You have to be able to prove all of these losses.
Many online apps keep a running tally of your wins/losses, so even if they didn’t send you a tax document, they do have something for you to look back on.