The filing deadline 2021 tax returns are just around the corner, so there are a few things to know about online gambling and taxes.
New Jersey Online casino players should be aware that all winnings are taxable and Uncle Sam wants a cut.
According to Internal Revenue Servicegambling winnings “are fully taxable and you must report the income on your tax return”.
The IRS does not explicitly mention online betting on its gambling information web page. However, the agency’s wording on what is considered income makes it clear that online gambling taxes will be paid.
New Jersey also taxes gambling winnings as income.
State gambling income tax applies to residents and nonresidents, as long as the winning occurred in New Jersey. This includes all internet gambling winnings, as a bettor must be physically present in the state to play NJ online casino games or place a mobile sports bet.
About these online gambling taxes
the federal tax rate on game winnings is a downside 24%. In New Jersey, the tax rate is 3%.
Online gamblers can expect to pay every penny owed on taxable winnings. Unlike in-person betting, where someone can remain anonymous, every bet made online is tracked and recorded.
All state-licensed gambling entities, including online operators, are required by federal law to report certain gambling winnings to the IRS on Form W2-G. The minimum payout for this to happen depends on the game type, as shown below:
- Horses race: Winnings greater than $600 on a $2 wager or 300 x any greater amount wagered.
- Slots and Bingo: Winnings (not reduced by amount wagered) greater than $1,200.
- Keno: Winnings (reduced by amount wagered) greater than $1,500.
- Poker Tournaments: Winnings (less buy-in amount) greater than $5,000.
- sports betting: Earnings greater than $5,000 in a calendar year.
What about deductions?
Paying taxes on gambling winnings is one thing. But what happens when luck turns the other way?
Well, there is always the possibility of deducting gambling losses.
Of course, there is a catch: a player can only deduct losses up to the amount declared as winnings. This means that a player cannot declare losses that exceed annual winnings.
All types of gambling winnings and losses can be combined for tax purposes.
The federal government recently changed the standard deduction amount, so individual deductions for gambling may not be worth it.
Be sure to speak with a tax preparation professional with any questions before filing.