There is always plenty of debate about how best to expand and improve online and retail gambling in New York. Not up for debate, no matter what form gambling expansion is enacted, is the tax treatment of your winnings. That applies to a slot machine hit, lucrative online parlay wager or a winning New York State Lottery ticket. All are gambling income, considered taxable by the IRS and should be reported on your federal and New York income tax returns. New York (especially New York City residents) has some of the highest tax rates in the nation, which can make tax issues more complex.
Two tax strategies are always worth pursuing:
The tax rate paid by New York residents is dependent on their annual income and tax bracket. It’s possible that gambling winnings, when added to annual income, could vault some players into a higher tax bracket.
Marginal tax rate is your income tax bracket. Effective rate is the actual percentage you pay after deductions. The state tax rate ranges from 4% to 8.82%, depending on your New York taxable income. If a filer lives in New York City, which collects its own income tax, he or she would owe an additional 3.876%.These tax calculations are estimates and rates can change. Consider consulting a tax professional or accountant to avoid potential mistakes.
The simple answer is yes. Whether the wagers were placed at a casino , sportsbook, race track or online; or won from sports betting , a slot machine or the New York State Lottery, all gambling winnings are considered taxable. Winnings that exceed a specific threshold will automatically trigger notification to the IRS and a W-2G Form, which will be issued to you. In many instances, federal taxes are automatically withheld from your payout.
It’s important to note: If no tax was withheld and you did not receive a W-2G Form, it is still your responsibility to report all gambling income on your federal and state tax returns, according to the IRS.
Gambling winnings are subject to a 24% federal tax rate. In New York, state tax ranges from a low of 4% to a high of 8.82%. The higher your taxable income, the higher your state tax rate. A breakdown of tax rates for single New Yorkers:
|Up to $8,500||4.00%|
Note: NY legislators passed a budget proposal in April 2021 that will raise the state income tax rate to 9.65% from 8.82% for single filers making over $1 million and joint filers earning more than $2 million. Rates will rise even higher for NY residents who make more than $5 million and $25 million per year.
As for local taxes, New York City income tax brackets range from 3.078% to 3.876%, with the highest rate kicking in at a taxable income level of $50,001.
Winnings that surpass a specific threshold will automatically trigger notification to the IRS. The W-2G Form is filled out by the payor (sportsbook, casino, lottery operator, etc.) and indicates the amount won and how much tax, if any, was withheld from the payout. Bettors should expect to receive a W-2G Form if gambling winnings exceeded any of these minimum thresholds during the previous calendar year:
If the winnings were non-cash prizes, such as a vehicle or boat, the fair market value of each prize should be reported.
New Yorkers with winnings in New Jersey or other states may be required to file a non-resident return if gambling winnings exceeded $5,000. Even if that threshold wasn’t met, include the winnings on your federal and NY income tax returns. Report your total gambling winnings as “Other Income’’ on Form 1040, Schedule 1, Line 8.
You will not receive Form W-2G if your gambling winnings did not meet the automatic withholding threshold. Still, the IRS considers all gambling winnings taxable income. That raises the question: How do you calculate wins and losses from the previous year without a W-2G?
The answer: By keeping accurate records of your wagering activity, which the IRS mandates for all bettors. Thus, players should retain and keep handy all relevant betting records and receipts.
One advantage to gambling online is your operator(s) can provide an electronic record of all your wagers made during the previous year, making it easy to track profits and losses.
Yes, but only if you itemize deductions on your tax returns. That’s not good news for most filers, since following passage of the 2017 Tax Cuts and Job Act, it’s estimated that nearly 90% use the standard deduction and cannot deduct gambling losses.
For those who itemize, only the amount of wagering winnings can be deducted. So, if you won $3,000, but lost $5,000 on wagers the previous year, only $3,000 can be deducted. The remaining $2,000 cannot be carried over.
It’s possible the IRS could ask you to substantiate wins and losses. If that happens, the following documentation will be helpful:
Deductions and expenses are different for professional gamblers, who are defined as someone who gambles as part of a trade or business and treated by the IRS as self-employed individuals.
Winnings from the New York State Lottery are subject to federal and state income tax. If you are a resident of New York City or Yonkers, your prize payment is also subject to city income taxes. Other important information about New York State Lottery winnings:
If a group wins a lottery prize, one of its members acts as group representative. This member is responsible for filling out Form 5754, which provides the name, address, residency information and prize amount for each member.
The form does not go to the IRS, but to the lottery commission, which uses the information to send W-2G forms to all members of the group, listing the amount of money each person receives. Generally, the IRS only requires you to report income that is yours.
Large groups have the option of forming a Limited Liability Corporation (LLC), in which the group leader would be responsible for making the disbursement to each member; or a Trust, which would make disbursements to the group.
The same tax liability from winning New York State lottery games also applies to multi-state games such as Mega Millions and Powerball. That means the federal tax rate of 24% will immediately be withheld, along with the highest New York state tax rate of 8.82%. Those rates apply whether you choose to take winnings in a lump sum or annuity.
What you choose to report or not to report is a personal decision. Keep in mind that if you received a W-2G Form detailing your gambling winnings, so did the IRS, which has a record of that income. If you fail to report or underreport gambling winnings, the IRS may send a letter telling you to report that money or charge penalties and interest on the amount owed.
If your winnings did not meet the W-2G threshold, the IRS may not be aware of that income. But the agency maintains that taxpayers are legally obligated to report all gambling income.
Lou Monaco had been East Coast Scene columnist for Gaming Today in Las Vegas since June 2019, covering the East Coast sportsbook scene with emphasis on NJ and PA. He also currently is a part-time writer for the high school sports department for NJ Advanced Media (NJ.com) in Iselin, NJ. Lou has over 30 years sports experience with previous stints at ESPN SportsTicker, Daily Racing Form and Oddschecker.