If you like to gamble, you must understand Form W-2G. Many people do not know there are many types of income, and even fewer realize that gambling can be one of those sources. Reporting your winning and losses is crucial to ensuring you are indicating income to the Internal Revenue Service (IRS) correctly, however, and knowing how to do so can keep you from an avoidable audit.
This general guide will discuss what goes into claiming income from gambling, how to fill out a Form W-2G, and what to do if you are unsure how to use it.
Why Gambling is Considered Income
According to the IRS, any money you win gambling or wagering is taxable income. Gambling winnings include slot machines, poker tournaments, and keno as well as from game shows, lotteries, bingo, and racetracks.
No matter how you make your money gambling, there are strict requirements when it comes to recordkeeping. There are two types of withholdings, too: regular and backup.
Regular Withholdings Explained
With regular withholdings, a gaming facility will withhold 24% of your cash winnings if the winnings minus the amount you wagered are $5,000 or more. This applies to the following:
- Wagering pools
- Other wagering transactions where the winnings are at least 300 times the amount that is wagered.
The rate is also 24% for non-cash payments if the gambling winner paid the withholding tax to the lottery sponsor or gaming facility. However, the rate goes up to 31.58% when the payer contributes to the withholding tax.
Backup Withholdings Explained
Typically, income resulting from slot machines, keno, poker tournaments, and bingo are subject to backup withholdings. This rate is 24% and also applies if:
- The winner does not provide an accurate taxpayer identification number to the gaming facility.
- The gambling winnings total at least $600 and are at least 300 times the wager.
- Gambling withholding was not made.
It is also important to note that you can deduct gambling losses, but this deduction is only up to the amount of your total winnings. You do this by listing your gambling losses as an itemized deduction on Schedule A. This can help you reduce your tax liability.
What is Form W-2G?
Form W-2G reports gambling winnings and any federal income tax withheld on those types of winnings. Many times gaming facilities will send you a Form W-2G if the amount of your gambling income exceeds the following thresholds in the prior year:
- Keno: When you make $1,500 or more
- Horse Racing: When you make $600 or more (if the win pays you at least 300 times the wager amount.)
- Slot Machines: When you make $1,200 or more from slot machines or bingo
- Poker Tournaments: When you make $5,000 or more.
Even if you do not receive W-2G, you still need to report all of your gambling earnings on your year-end tax form. If you are sent a W-2G but did not include the winnings on your tax form, you may receive an IRS Notice CP 2000 or “Underreported Income” notice. This letter will detail the discrepancy and include the specific steps you will need to take to resolve this issue.
How to Fill Out Form W-2G
Any time you gamble, you need to keep certain documents. These include payment slips and wager statements which will help you verify the contents and accuracy of the information on the W-2G forms.
How you withhold and report your gambling winnings will depend on a few factors, including the:
- Amount of your gambling winnings
This amount will indicate your gross winnings, minus your buy-in ( the amount of the wager). This will depend on the type of gambling activity you partake in.
This date is when the winnings occurred and not the day you were paid.
- Type of wager
If the gambling income includes anything other than a regular race bet, you will enter the wager type.
- Income tax
This is the amount of state income tax and local income tax withheld, plus the amount of federal income tax withholdings.
You will need to know the amount of the backup withholdings.
You will need to know information about the winnings. This can include the card number (color if relevant), ticket number, machine serial number, and any other information that can help you identify the winning transaction.
- Initials and location
You will need to know the initials and the location paying the winnings. In other types of gambling, such as poker tournaments, you would need to know the place of the tournament and the sponsor.
- Information about the individual receiving the winnings
This will be for information about the individual receiving the winnings — you — including your Social Security number or taxpayer identification number.
Additionally, in order to prepare the Form W-2G properly, you will also need to provide a statement to the winner (including Copies B and C of Form W-2G).
Benefits of Working With a Trusted Tax Advisor
You take risks while you gamble, but do not apply this mentality to your tax returns. You must report your winnings or losses whether you bet on horse races or like to play bingo. Working with a trusted tax advisor can help you get this process right and ensure you are filing Form W-2G correctly and not missing any crucial steps.
If you take part in any gambling, contact Silver Tax Group today. Our expert team can discuss your Form W-2G questions or assist you with any other tax-related questions you might have.