1. Us Tax On Poker Winnings Money
2. Us Tax On Poker Winnings 2016
3. Winning Poker Strategy
4. Winning Poker Hands

If you have winnings from blackjack, baccarat, craps, roulette, or big-6 wheel, and the casino gave you a Form 1042-S (Foreign Person’s US Source income subject to withholding) showing that tax was withheld, enter these winnings in column d of line 10, with a tax rate of zero%. You can claim a refund of the tax. Jul 19, 2019  The Canadian Livingston will not have to pay tax in Canada on his winnings but will owe 30 percent of his $4 million prize to the US due to a tax treaty between the two countries.

There are several differences between the nature of live and online gambling. One is that for the past several years, online gambling activity has been operated by companies located outside of the United States. A second is that these offshore web sites almost never immediately transfer winnings into the customer’s bank account. So, does one treat gambling winnings from online play differently from winnings from live play for tax purposes?

In general, the answer is no.

Takeaway #1: All online gambling winnings of U.S. residents are taxable under the Internal Revenue Code.

The Internal Revenue Code does not differentiate between gambling winnings from brick and mortar casinos and from online play. All gambling winnings are taxable.

“But the income is earned overseas,” you say. This statement may or may not be true. Either way, it doesn’t matter. U.S. residents pay tax on all income, from whatever source derived. Whether the gambling winnings are from a home game in your basement, a Las Vegas casino, or an online gambling website, they are all equally taxable.

Takeaway #2: Illegal income is taxable income.

The legality of offshore online gambling under federal and state laws is cloudy. (Exception: It is a felony under Washington state law to engage in internet gambling.) For tax purposes, the legality is insignificant: Whether legal or illegal, gambling winnings from online gambling play is taxable. The IRS believes that some offshore online casinos may suggest that its U.S. players are not subject to U.S. tax laws. Clearly, such operators are wrong.

The next issue to examine is the timing of reporting gambling winnings. Time after time I hear the following statement: “I don’t have to report my online gambling winnings until they are deposited into my bank account.”

Wrong.

Takeaway #3: In general, online gambling winnings are taxable when credited to the taxpayer’s online casino account.

This may be the most misunderstood concept with respect to the taxation of gambling. The doctrine of constructive receipt sometimes requires cash method taxpayers to include an item in income even if no cash, services, or property are actually received in hand during that year. When are some of those times? A taxpayer has constructive receipt of income in the taxable year during which it is:

• credited to the taxpayer’s account;
• set apart for the taxpayer; or
• otherwise made available such that the taxpayer may draw upon it during the taxable year if notice of intention to withdraw had been given.

Applied to online gambling winnings, there is constructive receipt when the winnings are credited to the taxpayer’s online gambling account. For tax purposes, it doesn’t matter when the taxpayer actually withdraws the funds from the online casino account. (Note: How Black Friday changes this analysis, if at all, will be covered next week.)

From a recordkeeping standpoint, actual withdrawal and deposit amounts on online gambling sites in most cases do not mirror actual winnings or losses. Winnings and losses must be kept track by session, as discussed in a prior post.

Let’s conclude today’s discussion by addressing some possible banking issues associated with offshore online gambling accounts.

Takeaway #4: Online gambling accounts with offshore gambling sites are likely not foreign financial accounts subject to FBAR reporting or specified financial assets subject to Form 8938 reporting.

You may have heard about the “FBAR.” It’s a Treasury Department form. You can view it here. The primary purpose of the FBAR is to discourage taxpayers from hiding income overseas. If the total maximum balances of all foreign financial accounts of a U.S. person during the tax year exceed $10,000, then that person must file the FBAR by June 30 of the following tax year.

Significant penalties may apply for failure to timely file the FBAR, if required. A non-willful failure to file, for example, is $10,000 per violation.

Some U.S. residents have decided to move outside the country in order to play online poker full-time. It’s very possible such individuals have opened a foreign bank account or two. Yes, foreign bank accounts are subject to FBAR reporting.

Us Tax On Poker Winnings Money

Are offshore online casino accounts subject to FBAR reporting? Due to a recent change in the regulations of the laws governing FBAR reporting requirements, it appears not.

I must note that the IRS has not commented on this issue, so we can’t be entirely sure what the government’s position is. Prior regulations considered an account with a “pooled fund” as a reportable account. The current regulations narrowed the pooled fund definition only to those which issue shares available to the general public, or that have a regular net asset value determination. As far as I know, companies handling casino customer deposits do not issue public shares for these funds.

Speaking of reporting requirements, the IRS has a new (and additional) foreign asset reporting requirement, Form 8938. Unlike the FBAR, this form is attached to a taxpayer’s tax return.

What falls under Form 8938 reporting? Section 6038D of the Internal Revenue Code says that a “specified person” holding an interest in a “specified foreign financial asset” during the tax year must attach to his tax return certain information for each such asset if the total value of all such assets exceeds $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

The Form 8938 Instructions discuss who is considered a “specified person” and what items are considered “specified foreign financial assets.” There are several caveats and exceptions. Make no mistake about it: These reporting rules are complicated. In short, I can say foreign bank accounts are covered, but it appears that offshore online gambling accounts are not.

Next week, we examine several possible tax implications arising due to Black Friday.

Author’s note: I must remind all readers that it is impossible to offer comprehensive tax advice on the internet. Information I write on this blog is not legal advice, and is not intended to address anyone’s particular tax situation. Should you seek such advice, consult with a tax professional to discuss your facts and circumstances.

IRS Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice contained in this blog is not intended or written to be used, and cannot be used, for the purposes of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this blog.

Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.

Casino Winnings Are Not Tax-Free

Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.

By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.

How Much You Win Matters

While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:

• $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
  
• $1,500 (reduced by the wager) in keno winnings.
  
• $1,200 (not reduced by the wager) from slot machines or bingo
  
• $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.
  

Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.

Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.

What is the Federal Gambling Tax Rate?

Standard federal tax withholding applies to winnings of $5,000 or more from:

• Wagering pools (this does not include poker tournaments).
  
• Lotteries.
  
• Sweepstakes.
  
• Other gambling transactions where the winnings are at least 300 times the amount wagered.
  

If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.

Us Tax On Poker Winnings 2016

The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.

It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.

Winning Poker Strategy

Can You Deduct Gambling Losses?

If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.

The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.

What About State Withholding Tax on Gambling Winnings?

There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.

Each state has different rules. 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 return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.

State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.

How to Report Taxes on Casino Winnings

You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.

You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.

Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.

Winning Poker Hands

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About the Author

Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.