For anyone who takes a spin at roulette, buys a lottery ticket, or engages in other wagering activities, it’s important to be familiar with the applicable tax rules. Otherwise, you could be putting yourself at risk for interest or penalties — or missing out on tax-saving opportunities.
You must report 100% of your wagering winnings as taxable income. The value of extraordinary complimentary items (“comps”), such as autos and jewelry, provided by gambling establishments must also be included in taxable income because comps are considered gambling winnings. The IRS has reserved its opinion on whether you can exclude “normal comps,” such as food, drink, lodging, and entertainment, from taxable income. Winnings are subject to your regular federal income tax rate, which may be as high as 39.6%.
Gambling establishments may be required to report your winnings to you on IRS Form W-2G (“Certain Gambling Winnings”). In some cases, they may withhold federal income tax. You should be aware that anytime a Form W-2G is issued, the IRS gets a copy. So, if you’ve received such a form, keep in mind that the IRS will expect to see the winnings on your tax return.