Winning the Lottery or scoring on a sports wager can change your life in profound ways. Congratulations on your lucky break!
Any gambling winnings, which include foreign lottery prizes, are reportable on your tax return as well. Reporting your lottery prize doesn't necessarily mean you have to pay tax on it, but if you do, it's subject to the same graduated tax rates that apply to your other income.
Avoid taxes on gambling winnings in the US! Claim your federal tax withholdings. Recover the taxes withheld on your US casino winnings and taxes on winnings from keno, lotteries, bingo, dog and horse racing, as well as poker tournaments and slots. Casino Games With No IRS Federal Tax Withholdings. BINGO WINNINGS. Winnings (not reduced by the wager) of $1200 USD or more are taxed. CONTEST, RAFFLE, SWEEPSTAKES, PRIZE WINNINGS. Winnings of $600 USD or more are taxed when the winnings are also at least 300 times the original wager.
Just remember that your good fortune includes a responsibility to pay taxes and fees on those winnings.
Gambling Winnings:
In 2018, Governor Phil Murphy signed a law that authorized legal sports betting in New Jersey. The law (A4111) allows people, age 21 and over, to place sports bets over the internet or in person at New Jersey's casinos, racetracks, and former racetracks. Sports betting is now among the many forms of gambling winnings that are subject to the New Jersey Gross Income Tax, including legalized gambling (sports betting, casino, racetrack, etc.) and illegal gambling.
Lottery:
New Jersey Lottery winnings from prize amounts exceeding $10,000 became subject to the Gross Income Tax in January 2009.
Withholding Rate from Gambling Winnings
New Jersey Income Tax is withheld at an amount equal to three percent (3%) of the payout for both New Jersey residents and nonresidents (N.J.S.A. 54A:5.1(g)).
Withholding Rate from Lottery Winnings
The rate is determined by the amount of the payout. If a prize is taxable (i.e., over $10,000), the entire amount of the payout is subject to withholding, not just the amount in excess of $10,000. The withholding rates for gambling winnings paid by the New Jersey Lottery are as follows:
- 5% for Lottery payouts between $10,001 and $500,000;
- 8% for Lottery payouts over $500,000; and
- 8% for Lottery payouts over $10,000, if the claimant does not provide a valid Taxpayer Identification Number.
Companies that obtain the right to Lottery payments from the winner and receive Lottery payments are also subject to New Jersey withholdings. Each company is required to file for a refund of the tax withheld, if applicable.
Lottery
New Jersey Lottery winnings from prize amounts exceeding $10,000 are taxable. The individual prize amount is the determining factor of taxability, not the total amount of Lottery winnings during the year.
- For example, if a person won the New Jersey Lottery twice in the same year, and the winning prize amounts were $5,000 and $6,000, these winnings would not be subject to New Jersey Gross Income Tax. However, if that person won the Lottery once and received a prize of $11,000, the winnings would be taxable.
- This standard for taxability applies to both residents and nonresidents.
- The New Jersey Lottery permits donating, splitting, and assigning Lottery proceeds to someone else or to a charity. If you choose to donate, split, or assign your Lottery winnings, in whole or in part, the value is taxable to the recipient in the same way as it is for federal income tax purposes.
Gambling and Lottery
Making Estimated Payments
If you will not have enough withholdings to cover your New Jersey Income Tax liability, you must make estimated payments to avoid interest and penalties. For more information on estimated payments, see GIT-8, Estimating Income Taxes.
Out-of-State Sales:
Out-of-state lottery winnings are taxable for New Jersey Gross Income Tax purposes regardless of the amount.
Gambling winnings from a New Jersey location are taxable to nonresidents. Gambling includes the activities of sports betting and placing bets at casinos and racetracks.
Calculating Taxable Income
You may use your gambling losses to offset gambling winnings from the same year as long as they do not exceed your total winnings. If your losses were greater than your winnings, you cannot report the negative figure on your New Jersey tax return. You must claim zero income for net gambling winnings. For more information, see TB-20(R), Gambling Winnings or Losses.
You may be required to substantiate gambling losses used to offset winnings reported on your New Jersey tax return. Evidence of losses can include your losing tickets, a daily log or journal of wins and losses, canceled checks, notes, etc. You are not required to provide a detailed rider of gambling winnings and losses with your New Jersey tax return. However, if you report gambling winnings (net of losses) on your New Jersey return, you must attach a supporting statement indicating your total winnings and losses.
Reporting Taxable Winnings
Include taxable New Jersey Lottery and gambling winnings in the category of “net gambling winnings” on your New Jersey Gross Income Tax return.
If you're betting on the March Madness basketball tournament — or other sporting events — probably the last thing on your mind is taxes.
But taxes are relevant to gambling — and that increasingly will be the case as legal gambling spreads across the nation following a Supreme Court decision last year that gave states the green light to legalize, and tax, sports betting.
Irs And Gambling Winnings
March Madness could be the largest sports-betting activity all year, with the American Gaming Association predicting 47 million people will bet a combined $8.5 billion, or 40 percent more than the public wagered on the Super Bowl.
Most of the March Madness winnings probably won't be declared for tax purposes, though it should be.
'All income is taxable unless it's excluded,' said Mark Steber, chief tax officer for Jackson Hewitt Tax Service. 'Winnings aren't excluded.'
The federal tax rules on gambling haven't changed much in recent years and weren't significantly altered by tax reform in 2017. The main provisions are:
- Winnings are fully taxable and should be reported on your federal return. Gambling income includes money received from lotteries, raffles, horse races and casinos. It includes cash winnings and the fair value of prizes such as cars or vacations.
- The casino or other entity paying the prize is supposed to issue you a W-2G form, especially for larger winnings. You also might be subject to federal tax withholding on larger amounts and required to pay estimated taxes.
- You may deduct gambling expenses if you itemize deductions — provided that the amount of these deductions doesn't exceed the gambling income or winnings that you claim. In other words, you can claim losses up to the amount of winnings. To deduct losses, as with other expenses, you must keep records including receipts, tickets or statements, along with an accurate diary or log.
- You can't reduce your gambling winnings by your gambling losses and report the difference. Rather, you report the full amount of your winnings as income and claim your losses (up to the amount of winnings) as an itemized deduction. Winnings are reported as 'other income' on Schedule 1 of Form 1040.
According to an example provided by TurboTax, if you win $5,000 this year but lose $8,000, you may deduct only $5,000. You can't deduct the remaining $3,000 or carry it forward to future years.
READ MORE: New poll finds 47 million Americans will place bets, many taking Duke
Records and taxes
As noted, the IRS requires that you maintain records of your gambling activities if you hope to deduct losses. Deductible gambling expenses include travel expenses to or from a casino.
Gambling winnings also are subject to taxation by states that impose income taxes. This means that if you win while traveling, you could face taxes in that state and those imposed by your state of residence (though double taxation wouldn't apply as the home state likely would provide a credit for taxes collected by the other, Steber said).
Whether you receive a W-2 depends on how much you win, what type of gambling you engage in and how sophisticated the organizing entity is, he said. If you win $50 in an office basketball pool, it's pretty likely nobody will issue you a W-2.
Of the estimated $8.5 billion in March Madness gambling, the American Gaming Association estimates $4.6 billion will be wagered in informal March Madness brackets. It's questionable how much of the winnings from those competitions will be declared, and thus, taxed. So too for the money that Americans will wager with friends or bookies and through online websites, mostly offshore ones.
How tax reform could matter
One tax reform-related change relevant to gambling is this: Because you must itemize gambling losses, it won't help if you don't have sufficient overall deductions to qualify for itemizing.
With the increased standard deduction from tax reform, fewer Americans will be able to itemize. The new standard deduction amounts are $12,000 for singles and $24,000 for married couples filing jointly.
'If you don't itemize, you won't get the benefit of gambling deductions,' Steber said.
He described the tax rules tied to gambling as somewhat mysterious and confusing to the general public, perhaps partly because most people don't often win thousands or hundreds of thousands of dollars (or more).
But when they do win big, taxpayers would be wise to seek professional tax guidance, he said.
'You won't hear much about all this if you're playing for a $100 bingo prize, but the rules are still the same,' Steber said. 'If you win, you owe, and if you don't declare the winnings, you face some risk' of hearing from federal and state tax authorities later.
Sports betting trends
The taxation of gambling is more relevant following last year's Supreme Court decision in Murphy v. the NCAA, which made it easier for states to legalize and tax sports betting.
Since then, eight states have authorized and implemented sports betting, while it has been approved but isn't operational yet in three other states and the District of Columbia, according to the American Gaming Association.
Legal sports betting is under consideration in 23 other states, including Arizona. The association has a state-by-state gambling map showing what's happening where.
Meanwhile, 63 percent of Americans support the Supreme Court's decision to strike down what had been a federal ban on sports betting, according to a survey released by the American Gaming Association. But only 23 percent of respondents think professional sports leagues should be able to take a share of any betting revenue, according to the poll.
The American Gaming Association estimates that Americans wagered roughly $1 billion in legal sports betting markets in January, spread across Nevada and six Eastern and Southern states. Nevada (primarily Las Vegas) accounted for slightly less than 50 percent of the total — the first time it has taken less than half.
In other words, a slight majority of all sports betting took place in legal markets that didn't exist a year ago, the association noted. New Jersey was the second biggest state after Nevada for sports gambling, by a comfortable margin.
Reach Wiles at russ.wiles@arizonarepublic.com or 602-444-8616.