Taxation and Gambling – What Should Be Reported?
Filed Under (Recommended) by johnjohn on 25-01-2012
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For most people gambling is just a bit of fun that they might indulge in from time to time when they are out or on holiday. And it is normally something that people enjoy a lot more when they start winning. But what happens if you start winning a lot of money? If you do have a large windfall or get on an extended windfall then how much of that luck should wind its way to the Inland Revenue Service so they get some fortune too? Gambling income can still, after all, be classed as income that is taxable.
In a lot of instances if you win large jackpots the person paying out will take your taxes out at source and the information about the deduction will be supplied to you on a W-2G form. The amount of cash that you have won and what kind of gambling you were doing will dictate exactly how that happens and how the taxes and information are processed.
Another way that larger amounts of winnings can be dealt with is with the payer asking you for your social security number in order that they can tell the Inland Revenue Service on your behalf about your earnings. They may well take up to 25% in tax out of those winnings and if you fail to provide a social security number it can be as much as 28% so it is wise to give them your details!
If, however, your winnings are smaller then no money will be taken at source and no one will inform the IRS. You, however, are still supposed to declare these winnings. Whether large or small, gambling winnings must be declared on the ‘other income’ bit of your 1040 Form. This section also lets you add details of any of those at source taxes that you might have paid to the person paying out the winnings and which would have been listed on the W-2G form.
Remember too that you can make a tax reduction on your losses as well. Just make sure there aren’t too many of these!
Esther is a financial journalist and blogger. She writes about all areas of personal finance from mortgages to credit cards to umbrella companies .