[author: Jana M. Luttenegger]
The IRS periodically issues tax tips, and some of them catch my eye. This time, it was "Five Important Tips on Gambling Income and Losses." I bet you can guess what the biggest tip was: Winnings from gambling are income, reported as "Other Income" on the Form 1040.
My curiosity of gambling income started when I was young, as I watched people win large prizes on TV shows. In reality, they most likely needed to dig up some cash around tax time to pay the taxes on that new car or the trip to Rome. I still wonder if winners end up selling the prize if they couldn't find the money for the taxes or the car license and registration fees). I was curious just what the reporting requirements were for gambling income, and here is what I learned:
The payer (think casino) must give you a Form W-2G (similar to how employers report your income) if you receive $1200 or more from bingo or slot machines, $1500 or more from keno, or more than $5,000 from poker.
For sweepstakes and lotteries, Form W2-G is filed if (i) the winnings were $600 or more and (ii) the winnings were at least 300 times the amount of the wager. (Ex: If the lottery ticket was $5, and the winnings were $600, doesn't meet the requirements.)
This applies even to events put on by charitable organizations (think church bingo fundraisers or raffles)
Noncash items such as a car are considered income at the fair market value.
The amount required to be withheld ranges from 25% to 33.33%
You can claim your gambling losses, up to the amount of your gambling winnings (but they must be separated, meaning, list the winnings as income, list the losses as a deduction). The losses should of course be well documented.
Interesting. I suppose if you regularly have big winnings, it would be worth it to start keeping track of those losses, but I can't imagine many people really keep an accurate record of losses.
This is by no means a full list or description of what needs to be reported. If you so desire, see IRS Publication 525 on Taxable and Nontaxable Income, Publication 529 on Miscellaneous Deductions, or I also found the instructions for Form W-2G informative. Best of luck if your Labor Day plans involve any gambling.