Withholding on Winnings
If you're lucky enough to land a substantial win on certain games, the casino will issue you a W-2G form that shows your gross winnings, the type of wager you made, the date, the cashier who paid your winnings, and the amount of income tax withheld. The Internal Revenue Service has two withholding rates for gambling winnings: 27 percent for regular withholding on cash winnings, and 30 percent for backup withholding. Only one of these rates will be applied to your winnings. In general, the regular withholding rate will apply as long as you can supply a valid social security number; if you can't, the casino will withhold at the higher backup rate.
Different winnings limits apply to different games. In general, taxes may be withheld on winnings of $600 or more when the winnings are at least 300 times the amount of the bet. So, for example, if you won a $600 purse on a $2 race bet, the casino or race course would give you a W-2G, a copy would go to the IRS, and you would have to report those winnings as income on your tax return.
Games Subject to Backup Withholding
Regular withholding rates apply to almost all gambling winnings. The key exceptions are keno, bingo, and slot machines, which have different reporting limits and different tax rules. Noncash prizes, such as cars and vacations, also have their own set of rules.
For keno, the threshold for IRS reporting is $1,500. You have the option of subtracting the amount of your wager from your winnings before the withholding tax is figured. For example, if you spent $200 at the keno lounge and won $2,100, you could choose to subtract your $200 wager from your winnings and pay withholding taxes on $1,900 rather than on the full $2,100. The IRS requires casinos to use the backup-withholding rate for keno winnings.
The backup-withholding rate also applies to bingo and slot machine winnings of $1,200 or more. As with keno winnings, you have the option to subtract your wager from your winnings. The regular withholding rate is usually applied to winnings of $5,000 or more from lotteries, sweepstakes, wagering pools, and other forms of gambling where the winnings constitute at least 300 times the amount you wagered.
Backup-withholding taxes apply to the entire sum of winnings, not just the amount that exceeds the reporting requirement. In our keno example on this page, the reporting limit is $1,500, but the total winnings (minus the wager) are $1,900. The backup-withholding rate will be applied to the entire $1,900, not just to the $400 over the reporting limit.
Table Game Winnings
The IRS does not require casinos to file W-2G forms on your winnings at table games, such as blackjack, craps, roulette, and baccarat. However, the casino may issue a 1099 form at the end of the year if your winnings exceed $600. In this case, no taxes will be withheld at the time you collect your winnings, and you will be liable for all taxes on your table game winnings when you file your return.
You can ask the casino to issue a W-G2 form any time you win, no matter what the amount. You also can elect to have more than the standard withholding rate taken out of your winnings. If the jackpot is high enough, you could choose to have 50 percent or more withheld for taxes, and that might significantly reduce your overall income tax bill at the end of the year.
Noncash prizes also are subject to taxes, under a different set of rules. Generally, prizes like merchandise, vehicles, and vacations must be given a “fair market value” for tax purposes. If you decide to pay the tax when you win the prize, the tax rate will be the regular withholding rate, based on the fair market value minus the amount of your wager. If you choose to have the casino pay the withholding tax, you'll be taxed at a higher special withholding rate.