Sports betting winnings? Fun. Sports betting taxes? Not so much. Regardless, taxes on gambling winnings are a very real thing. The Internal Revenue Service, the state of Michigan and various municipalities in the state all consider money you win gambling in any way as taxable income.
As the extended deadline for filing your income tax returns for the tax year 2020 approaches, it’s natural to have questions. These questions especially pertains to online gambling, as it’s new to Michiganders. Here’s a quick walkthrough of three things you should know when it comes to taxes on your gambling activity in MI.
1. When are my 2020 gambling winnings taxes due?
Because of the COVID-19 pandemic, the IRS and the MI Department of the Treasury have extended the filing deadline to May 17 in 2021. That date applies to MI cities and counties that charge their own local income taxes as well.
Although you have the extra four weeks this year compared with pre-pandemic times, that doesn’t mean the tax rates are any different. It also doesn’t mean the collecting jurisdictions don’t expect you to report all of your gambling winnings from our mostly quarantined 2020.
A common mistake that many gamblers make is assuming that they only need to report their gambling winnings if they make a profit over the course of a year. That’s incorrect. A good way to think of this is like your gross and net paycheck from your employer.
Your gambling winnings are like your gross wages, before any deductions. Federal and state law requires you to report and pay taxes on them, regardless of how much you may have wagered to obtain them. For example, if you bet $500 during 2020 on sporting events and won $50, you’d still need to report that $50 and pay tax on it, even though you actually lost $450 during the year.
For more details about how to report your taxes on gambling winnings on your tax returns, and what the rates are, check out our guide on the subject. Another important thing to remember is that it doesn’t pay to gamble with whether or not you report your winnings.
2. Trying to hide your gambling winnings is a losing bet
If your winnings are over a certain threshold, the entity that grants the prize withholds a percentage off the top. In many of those cases, that act completely or mostly takes care of your tax liability. You might still owe a little more, based on your personal tax situation, or you might even have a refund coming to you.
You can’t ascertain those next steps if you don’t report your gambling winnings on your returns. If the casino, racetrack, sportsbook or other operator already withheld enough to take care of what you owe, you’d literally be risking an audit for no reason by trying to hide your gambling winnings.
It’s true that tax collecting bodies are unlikely to audit someone over a couple of hundred dollars. However, there’s nothing to stop them from doing so. You’d not only owe the amount you’re short, in that instance, but there will likely be fines and interest on top of that.
If you get a W-2G Form from a gambling company, it’s a safe bet that the relevant governments also got one with your information on it. Thus, it’s foolish to not report your winnings, even if it increases your liability for the year. If for nothing more than peace of mind, it’s best to do the right thing. That mindset includes all your gambling activity, regardless of how it unfolds.
3. Whether in-person or online, it’s all the same for tax purposes
With the introduction of Michigan online casinos, Michigan online poker, and Michigan online sports betting in addition to playing the Michigan Lottery online, MI has recently become an active place for online gaming. As far as income taxes go, winnings are winnings.
The tax is the same, whether you placed that winning sports bet at a window in-person or on your phone over the Internet. That goes for online slots and table games, online poker, and lottery games online as well.
Now, because these online capabilities were not legal in Michigan until Jan. 22, 2021, you won’t have to worry about the tax fallout until next year’s filings. But it’s good to understand this issue now, too.
Online gambling can actually make tax time easier in a couple of ways. For one thing, if you choose to itemize your deductions so you can claim some of your gambling losses, your account statements make for a great record of your activity.
Also, it’s a convenient way to keep track of your estimated liability as you move throughout the year. Every time you make a withdrawal, you can put back a percentage of your winnings around what you expect to owe for the year.
Gamblings winnings and taxes don’t have to be complicated, as long as you keep a few things in mind. The deadline is approaching for the tax year 2020. And with this experience, you’ll hopefully become comfortable with this element of gaming in future years when the online element really kicks in.