Taxes Blackjack Winnings

  • Factoid: Twenty-five years ago 2 states had legalized gambling and 48 did not. Now 48 do and only 2 do not (Hawaii and Utah.)
  • Factoid: Nevada gambling revenue was $1 billion in 1975 ..$10 billion in 2004 and is projected to be $15 billion in 2009.

'Las Vegas was built for people who are really bad at math..' ..Penn Jillette (Penn & Teller, now at the Rio!)

Blackjack winnings are subject to the federal income tax and, in some states, a state tax. On a federal tax return, you must report gambling income on Line 21 ('Other Income') of IRS Form 1040. The federal government taxes gambling winnings at the highest rates allowed. So do the many states and even cities that impose income taxes on their residents. If you make enough money, in a high-tax state like California or New York, the top tax bracket is about 50 percent.

'There are two times in a man's life when he should not speculate: when he can't afford it and when he can.' ..Samuel Clemens, also known as 'Mark Twain' (1835-1910)

In the last decade, entertainment, shopping and fine dining have replaced gambling as the top attraction for visitors to Las Vegas. Many hotels get more than half of their revenue from non-gambling sources.

Although tourists no longer list gambling as the primary reason for their visit, almost all are willing to risk an average of $500 each trying to hit that elusive jackpot.

Nationwide, casino gambling is a $50 billion business. And 20 percent of that amount comes from just one state ..Nevada. One third of all Nevada general tax revenue comes from state gambling taxes.

The state of Nevada and casinos like to call it “gaming” since ”gambling” has such an negative ring to it. We agree. “Gaming” is a better word for the games of chance legally offered in Las Vegas. Games are played for entertainment. And this is how you should treat the money you risk in Las Vegas in hopes of hitting “The Big One.” Play for fun and the “possibility” that you might win. NEVER take Las Vegas gambling seriously.

Gambling laws in Nevada

Las Vegas gambling was legalized in 1931. The Nevada Gaming Commission and Control Board develops and administers all gaming regulations. Their website can make interesting reading. Casinos with more than 15 slot machines pay an annual tax of $250 on each one. There is also an additional monthly tax of up to 6.75% on gross gaming revenue ..a percentage that is the lowest in the U.S.

Anyone working as a gaming employee must be registered with the state and have a valid gaming work permit. This includes all casino workers except bartenders and cocktail waitresses.

You must be 21 to enter a casino, gamble ..or purchase or consume alcoholic beverages. If you look young carry a state-issued ID with photograph such as a driver’s license. Children are permitted in the casino public walkways but are not allowed to be near slot machines or gaming tables. You are allowed to carry open alcoholic beverage containers on the street, but not in a vehicle.

Taxes on gambling winnings

There are some things you should know if you are lucky enough to win. The Internal Revenue Service (IRS) requires all casinos in certain instances to withhold federal taxes if you win over a certain amount. The percentage withheld ranges between 25 and 30 percent depending on how you won. Here is how it works.

If you had gambling winnings, the casino is required by the IRS Information Reporting rules to withhold 28% as income tax if you do not provide a documented TIN (Taxpayer Identification Number, that is, your Social Security Number.) We have heard of cases where it is withheld no matter what. The withholding tax is 30% if a foreign gambler. The tax rate is 25 percent if the amount is over $5,000 (except for non-resident aliens.)

When your winnings exceed a specified threshold and/or tax is withheld, the casino will give you an IRS Form W-2G showing the amount you won and the amount of tax withheld. Report (and take credit for the tax you paid) on your IRS Form 1040 tax return at the end of the year. (Only use Form 1040 if you had gambling winnings; you cannot use any other form.)

Generally, gambling winnings are reportable to the IRS if the amount paid is (a) $600 or more and (b) at least 300 times the amount of the wager. This requirement primarily applies to lotteries, sweepstakes and other big winnings from small bets. It does not apply to winnings from bingo, keno, and slot machines.

Casinos report gambling winnings for these games to the IRS when a player wins $1,200 or more from a bingo game or slot machine or if the proceeds are $1,500 or more from a keno game. When you exceed these amounts, the casino may withhold taxes and will provide you with IRS Form W-2G. They keep the original and give you two copies of the form. (If state income tax withholding is required on gambling winnings in your state, additional taxes may be withheld.)

The rules are different for table games (such as blackjack, baccarat, craps, roulette or other spinning wheel games.) Since Nevada casinos do not know the amount you started with, they are not able to determine how much you won (..your taxable gain.) As a result, federal law provides that there is no withholding or even reporting of table game wins to the IRS. It therefore follows that table game winners probably do not report their gambling profits to the IRS.

You not only pay taxes on gambling profits, but you can also claim gambling losses as an itemized deduction as well. But you must keep some kind of documentation (such as a diary or tickets) to substantiate the amount and nature of the losses. In any event, you cannot claim gambling losses that exceed your winnings.

Managing your money

Greed is the downfall of most players. The odds that you will win if you play long enough is statistically wrong ..as is; having doubled your money, you next try to quadruple the winnings (and end up losing it all.) Both concepts have built a lot of nice hotel-casinos in Las Vegas.

My system for managing gambling money is simple. I budget $100 a day which, according to statistics, is about average for Las Vegas visitors. If I am on a five day vacation, I put $100 in each of five dated envelopes ..a total of $500. I ration the money throughout the day and stop when I lose my hundred and do other things. I might stop when I double my allotment. In any event at the end of the day, I either am ahead or behind. If I am ahead, I put whatever portion of the $100 I have left (hopefully it is more than $100) back in the same dated envelope and place it in the room safe that hotels provide. Tomorrow I play with the money in following day’s envelope. The most you can lose is $100 on any given day ..or $500 for your trip. I am happy if I break even ..and you should be too. Once in a while I go home with “their” money. In recent years I have done better. I will tell you how later.

The bad news: There are no casino games or bets where the house does not have a clear advantage. The odds either favor the house ..or they get a commission. And if you are not familiar with basic information about the games you play or bets you make, you are just about a guaranteed loser. In short, casino owners are in business to make a profit. They did not build all those gorgeous hotels by giving away money.

The good news: The reality is that if you are lucky you can win ..and the drinks are free. But statistically the chances are against winning. So the cardinal rule is, over the long haul, whether playing the slots, table games, betting on sports or risking money on anything; you will probably lose. But some bets are better than others.

It is beyond the scope of this website to provide in depth strategy on how to gamble and win in Las Vegas. Many books have been written on the subject and - trust me - none work over the long haul ..or are illegal. Taxation on blackjack winnings

We will, however, cover the most popular games and things you should know as a beginner to have fun and minimize your loss ..and maybe make a few bucks.

Let the games begin

Blackjack (21) is either dealt by hand with one or two decks. Multiple Deck 21 is dealt from a box called “the shoe.” Everyone in Blackjack plays against the dealer. Roulette consists of a spinning wheel marked with numbers 1 through 36 (18 red, 18 black) and American Roulette has a green 0 and 00 .a total of 38 possibilities. You win if your number, combination of numbers or color comes up. To play Keno, you select a minimum of 4 but no more than 10 numbers on a ticket between 1 and 80. Twenty of the 80 numbered balls are drawn and you win if all your selected numbers are chosen. Craps is a complicated dice game which we do not recommend for first-timers. There are many other table games (and variations) as well. More and more people are playing poker these days and we will also have a little to say about that later.

By far, however, the most prevalent pastime in Las Vegas is playing the slot machines ..and video poker. We will cover the games of chance and sports betting in this chapter ..which you should play, where you should play and the odds of winning.

NEXT PAGE: 10.2 SLOT MACHINES ..AND VIDEO POKER..

One question that many individuals do not consider with respect to online Blackjack, at least in the United States, or even online gambling in general, is what are the tax implications of gambling activities? For the purposes of this page, we will compare the implications of online Blackjack to those of playing Blackjack in Brick & Mortar Casinos. In order to accomplish this, we will take a look at the following tax aspects of gambling activities:

  • Part 1-Mandatory Reporting (By Casinos)
  • Part 2-Mandatory Reporting (By Players)
  • Part 3-Keeping/Maintaining a Gambling Log

Part 1: Mandatory Reporting (By Casinos)

With respect to Brick & Mortar (aka Land-Based) casinos, there are a number of instances in which the casino is required to report a player’s winnings to the IRS for tax purposes.

There are a few different types of winnings that could apply, in one way or another, to Blackjack played in a Brick & Mortar Casino that would result in the issuance of a W-2G form from the casino to the player. The easiest way that a player could end up with a W-2G form is by playing Electronic Blackjack, as it is treated as a slot machine, where slot machine winnings equal to or in excess of $1,200 (regardless of the amount wagered) will result in the issuance of a W-2G.

In other words, if a player were to win any hand of Electronic Blackjack at a base bet of $600, or more, or were to bet less and still win an amount in excess of $1,200, (the amount bet does not offset from the $1,200) then a W-2G could be issued. Some people might ask: Why would a player ever play an Electronic Blackjack game such that winnings of this nature are possible?

First of all, in my experience, most casinos do not have an electronic Blackjack game of any kind that would allow for a sufficient enough base bet to result in winnings of $1,200, or more. However, if a casino did have such a machine, then it could make sense to play it if the casino were running a jackpot matching promotion, or some other similar promotion incumbent upon hitting a jackpot. It would be a relatively low variance way to hit a ton of jackpots quickly, of course, the casino would likely disallow the game in a real hurry! Other than that, I would be inclined to stay away from such games as they would result in a bunch of needless W-2G forms.

Furthermore, poker tournament winnings in excess of $5,000 (after accounting for the buy-in) can result in the issuance of a W-2G, and Blackjack Tournaments, while not specifically mentioned in the code, function much the same way.

Another theoretical way that a W-2G could be issued is for Table Game winnings that meet the following two criteria:

A.) They are $600, or more, dollars after the amount of the wager has been offset from the total win.

AND

B.) The result of the pay is at least 300x the amount originally wagered.

There are innumerable side bets at various table games that could result in a win of this nature, (the Fire Bet at Craps is just one example) but I cannot think of any payouts in excess of 300x the amount bet at Blackjack right off of the top of my head. However, if you ever see one, and want to avoid a W-2G form, then you would want to stay away from such a bet. Side bets are usually sucker bets, anyway, except for those that can be beaten via a card-counting system.

It is also important to understand the difference between a CTR (Currency Transaction Report) and a W-2G form. CTR’s are issued in the event that any cash transaction in excess of $10,000 takes place, and that is true when a player cashes out in excess of $10,000 in winnings at once. For this reason, a CTR can be issued regardless of whether or not the player even wins, and it is also not in any way based on winnings from an individual hand, or result.

CTR’s also differ in the sense that they are not casino-exclusive. Whereas W-2G forms are exclusive to gambling activities, CTR’s can and should be issued by any institution, retailer or business in which a customer (or the business itself) executes a transaction involving $10,000, or more, in cash. The reason for the existence of CTR’s is to avoid money laundering, so that the Federal Government can more accurately track where cash is coming from, the source, and what it is being used for.

There are also not necessarily any tax implications with respect to CTR’s because CTR’s are not in any way related to actual income. For example, a player could buy in for $20,000, which will result in a CTR if the player uses cash, lose $10,000, and cash out for $10,000, which will involve another CTR. Clearly, the player did not win anything, but CTR’s are not in any way related to income in a sense of taxation.

CTR’s also cannot be used to offset any gambling winnings that may have generated a W-2G, and again, the reason is because the issuance of a CTR does not necessarily mean that the player has won. Theoretically, a player could buy-in for $20,000, disseminate $10,000 amongst his friends to cash out, and then cash out $10,000 himself (generating another CTR) and claim a $10,000 loss to offset W2-G winnings, easily, if such a thing were allowed.

In any case, there are a few circumstances in which a casino might issue a W-2G as a result of Blackjack play, and they theoretically can any time they want, (the reporting requirements cited above are mandatory reporting requirements, W-2G’s could theoretically be issued for lesser amounts) but when it comes to playing the base game of Blackjack at a live table, W-2G’s are not something that one can expect to happen.

While Electronic Blackjack could be an exception, though the maximum bets on Electronic Blackjack are usually designed to prevent W-2G’s from happening, and tournaments as well as side bets could also be an exception, the base game of Blackjack will not result in the issuance of a W-2G. However, that does not mean that the player is not theoretically required to report anything:

Part 2: Mandatory Reporting-By Players

The most common misconception as relates to the issuance of W-2G forms to players is that players are not required to pay taxes on their gambling winnings UNLESS the player in question is issued a W-2G. While this often ends up being the case from both a pragmatic and actual standpoint, the fact of the matter is that player are required to report ALL gambling winnings to the IRS, whether or not any W-2G’s have been issued. If W-2G’s have been issued to the player, but the player has annualized gambling winnings in excess of the amounts of the W-2G’s, then the player is required to report those winnings, as well.

While we would certainly not advise what effectively amounts to tax evasion, as a practical matter, we will admit that most players (other than professionals) do not file in the full amount of their gambling winnings and generally only report when they have been issued W-2G’s. Aside from the obvious fact that most players would prefer not to pay taxes on such winnings, there is also the fact that (absent a W-2G) the IRS really has limited means (or none at all) to know that the player in question has even been gambling, whether or not the player won for the year, and if the player did, how much.

An important thing for a player who is issued a W-2G to understand is the fact that gambling losses are permitted to offset a player’s gambling winnings, and that is true even if the player was not issued a W-2G but is self-reporting. However, for recreational gamblers, gambling winnings can only be reduced by losses to the extent of the gambling winnings in question.

For example, a player could be issued a W-2G for $5,000, but may have incurred $10,000 in overall losses for the year. By keeping proper records, (which players should be encouraged to do, as casino Win/Loss statements are often actually incorrect) the player will be able to determine whether or not he or she has actually incurred a loss for the year in excess of winnings.

Players might wonder: How is it fair that gambling winnings should be taxed as income, but gambling losses in excess of winnings cannot be offset, and losses can only be offset to the extent of any winnings?

Taxes Blackjack Winnings Rules

The simple answer is that it is not fair, and for recreational players (in my opinion) gambling winnings should not be considered a source of income at all. Alternatively, gambling losses could be allowed (even in excess of winnings) to offset a player’s income, but then that could lead to all kinds of fraud as individuals would be able to significantly reduce their tax obligations by claiming gambling losses that simply do not exist.

Taxes Blackjack Winnings 2020

Furthermore, even if we are to keep the current system in place, we would argue that the thresholds for mandatory reporting should be increased because, at the time that the current thresholds in place went into effect, that amount of money was simply worth a lot more.

For example, using the $1,200 standard of slot machines and this handy inflation calculator:

http://data.bls.gov/cgi-bin/cpicalc.pl

We see that $1,200 in the year 1980 has the same buying power as $3,515.94 in today’s money. To look at that in reverse, $1,200 in today’s money has the buying power of $409.56 in 1980.

In other words, virtually every year, while the actual cash amounts of the mandatory issuance of a W-2G remain the same, the actual value of those thresholds decreases. Over several years, the value of such money will decrease substantially, so effectively, the (value) requirement for the issuance of a W-2G gets lower every year.

Taxes Blackjack Winnings Calculator

Once again, our position is that neither gambling winnings or losses should have any tax implications whatsoever for the actual player, but such is not the case. We understand why not all claimed losses can be deducted from income earned by more traditional means, (because that would be an easy avenue to tax fraud) but at the same time, considering gambling winnings as INCOME GAINED while not considering gambling losses as a reduction to income, or NEGATIVE INCOME (other than to the extent of gambling winnings) is fundamentally unfair to players.

While we have emphasized that most recreational players do not generally file W-2G forms either way, unless they are issued them for hitting some sort of mandatory threshold pay, some of you out there may be steadfastly determined that you must file your taxes strictly in accordance with the letter of the law. For those of you out there who fall into this category, or for those of you who would like to offset any possible W-2G mandatory reporting winnings with your losses, record keeping is absolutely essential:

Part 3: Keeping/Maintaining a Gambling Log

For those of you who are determined to do things strictly, ‘By the book,’ it is important to note that the reporting of gambling winnings is required if your winnings exceed any W-2G forms you may have been issued, or even if you have enjoyed winnings for the year in the absence of any W-2G forms. It is also important for people who are issued W-2G forms to understand that in order to offset those W-2G forms, they are allowed to report their gambling losses to such an extent that the W-2G forms can be nullified completely.

Taxes Blackjack Winnings 2019

With respect to the IRS, the minimum gambling log that someone should keep would incorporate all of an individual’s gambling activities with sessions preferably listed by date, location, general game(s) played, and the amount either won or lost in the session in question. Again, while we would not actually recommend filing your taxes incorrectly, (as such could constitute tax evasion) given seemingly proper gambling logs, the IRS is really in no position to question any claimed losses by the player in question.

Again, this is relevant to Online Blackjack because any sessions played in Online Blackjack could also contribute to a player’s winnings or losses.

First of all, the notion that it is illegal for a player to play online pursuant to the UIGEA (Unlawful Internet Gambling Enforcement Act) is both misguided and completely incorrect. With exception to certain activities, such as sports betting in states that the Federal Government has not authorized, it is in no way illegal for an individual (at the Federal level) to participate in Online Gambling activities as a mere player. The UIGEA focuses mostly on transactions involving US-Based banks, who cannot knowingly transfer funds, in or out, for the purposes of Online Gambling. Furthermore, it also focuses on operators, who cannot knowingly accept US funds for the purposes of Online Gambling, of course, operators with no ties to the US are effectively untouchable in this regard.

It is true that Online Gambling is patently illegal in several states, however, the IRS is in no position to care whether or not a player is breaking a state law by gambling online, they simply want any gambling-related income (ie: winnings) reported. In fact, the IRS specifically has a line item upon which income arising from illegal activity should be reported. Of course, any online gambling winnings would still be W-2G based because, on a Federal level, gambling online is not illegal.

Furthermore, while some states may have laws that make it illegal to gamble online, the actual enforcement of such laws is usually focused on operators rather than mere players. With exception to illegal sports betting, in fact, I can find virtually no instances of a player being charged with online gambling whilst acting as a mere player.

In other words, even online players are theoretically expected to report any winnings as income for taxation purposes. Similarly, it stands to reason that any online losses could be used to offset W-2G winnings (if any) for taxation purposes provided the proper gambling logs are kept.

One problem that some players run into (primarily those on the lower end of the income scale) is that the Standard Deduction is in excess of the W-2G winnings (which can only be offset on a 100% basis) and furthermore, the Standard Deduction is a greater deduction than would be any deduction for deducting the W-2G winnings combined with other deductions that the player may have. When this happens, the W-2G winnings (or any winnings for players feeling compelled to report them all) effectively cannot be written off because to do so would actually result in greater taxable income than simply taking the standard deduction.

Ironically, one workaround that such situated players may have for this problem is simply to report ALL gambling winnings and then offset them with losses, and again, that is going to require the player to keep a comprehensive log of all gambling activities as described above. Theoretically, each individual instance of winning (whether it be a hand, an hour, or a session) could be reported as winnings and the gambling log that the player keeps is largely arbitrary in that sense…as long as it remains consistent.

In case I haven’t explained that well enough, let me provide a little more detail:

For Heads of Household, the Standard Deduction for 2016 is going to be $9,300. If such a person were to have W-2G winnings of $2,000 (which can be offset 100% by losses, but not more than 100%) and the person has a maximum of $4,000 in other itemized deductions, then the total is $6,000 and the person in question will have a lesser tax obligation, of course, by taking the $9,300 standard deduction. As a consequence of this, however, the player effectively ends up having his W-2G winnings taxed as income, even if, in fact, the person lost money gambling for the year.

While this problem may seem insurmountable, technically, it’s actually not. The person in question may be able to claim ALL gambling winnings that he or she has incurred throughout the year, at least to such an amount in excess of the standard deduction, and if the person has lost for the year overall, write off those gambling winnings as a deduction:

Once again, if we look at the Standard Deduction of $9,300 against the $2,000 W-2G and the $4,000 in other itemized deductions the person was already going to take, we get a difference of $3,300 that the Standard Deduction is the superior deduction. However, if the player’s winnings exceed the difference between the two by at least the amount of the W-2G form, then the player (tax brackets aside) will be able to claim a deduction in excess of the Standard Deduction if the player has lost overall.

For example, if the player instead claims $7,300 in gambling wins, and losses equal to or exceeding the $7,300, then combined with the $4,000 in other itemized deductions that the player would have otherwise taken (were the Standard Deduction not superior) then the player will have a total of $11,300 in deductions, which is $2,000 greater (the amount of the W2-G form) than the Standard Deduction would have been. As a result, the player does not end up having the amount of the W-2G form taxed as income despite the fact that it is NOT ACTUAL INCOME because the player lost for the year, overall.

It is for that reason that it is important to keep a log of all gambling activities consisting of, at a minimum, the information that was detailed in the first part of this section. If the gambler loses so much as $0.01, or breaks even, from gambling, then there is no reason why the player should have to pay taxes on W-2G forms as though actual income gains took place. Most players, in whatever arbitrary measurements they use to describe a, ‘Session,’ will, in fact, lose money over the course of a year by way of gambling, but even with that, they will have winning sessions and losing sessions. For everyone aside from, ‘Once a year,’ type people, the sum of winnings from gambling, ‘Events,’ should meet or exceed the amount of the Standard Deduction and can be offset with losses that will also exceed such amount in addition to any W-2G’s the player may have.

Again, playing Blackjack Online is not illegal at the Federal Level, and as a result, any losses (or wins) from Online Blackjack are theoretically required to be reported. That being the case, any losses from Online Blackjack can offset winnings from any other gambling activity, even if it takes place at a Land-Based casino or some other physical gambling venue.

Conclusion:

Online casinos that are located abroad do not, strictly speaking, have any obligation to report a player’s winnings to the IRS because they do not fall under the jurisdiction of the Federal Government of the United States of America in any way whatsoever. However, players who play at those casinos are, in fact, technically required to report their gambling winnings as they are technically required to report all gambling winnings whether or not a W-2G has been issued.

Entertainment

For precisely that reason, with accurate and comprehensive record keeping, players are able to offset any gambling winnings, including W-2G mandatory issued winnings, with their online gambling losses, if any, including Online Blackjack. In most cases, Online Gambling is not illegal at the State Level if one is acting as a mere player, and it is NEVER illegal at the Federal level, (with exceptions for sports betting) so the IRS is completely unconcerned with the source of the gambling wins, or losses, they just want a player’s taxes filed correctly.