Tax on Online Casino Winnings – How Does it Work?

Taxes and online casino winnings – two things that just don’t go together, right? While you might think that anything you win online is fully yours to keep, that is not always the case. If you are unaware of the taxes required, it can quite literally end up costing you a lot! 

That’s why we have decided to clearly explain the matter, to help you keep those winnings with a good conscience. Here we have gathered information from several reputable sources, but if you are ever in doubt, please contact your local tax office to be 100% sure.

Do I have to pay tax on online casino winnings?

Let’s start off with the main question here: if you have to pay tax on online casino winnings or not. The answer will simply depend on which country you are a taxable citizen of, as it varies a lot. 

For example in the UK, most gambling winnings aren’t considered taxable. But in the US, the story is very different…

Casino winnings tax in the US

In the United States, all online winnings are fully taxable. This means that you are legally responsible for declaring any gambling income to the IRS, reported on Form W-2G.

Taxes on winnings from US state-licensed online casinos

Some US states have legalized online gambling, such as Nevada and New Jersey. From these states, US players can legally gamble at state-licensed online casinos. When doing so, it is important to know that the casinos are required to report casino wins over a certain amount:

• Slot or Video Poker winnings of more than $1,200
• Tabel game winnings of more than $600 (or 300x your wager)

You should receive form W2-G for reporting the winnings, but it might not be that all casino report all winnings. You are required to declare your winnings to the IRS. This is even if the online casino you play at has not reported any winnings.

Taxes on winnings from offshore casinos

Many gamblers believe that by playing at casinos based offshore, outside of the US, any winnings are not taxable. Sadly, this is not the case. As a US citizen, any income you earn, through winnings or otherwise, are taxable no matter where it comes from.

A notable difference here, though, is that offshore casinos won’t report your winnings to IRS like US online casinos are required to. This means that you are responsible for declaring it yourself.

If you are worried about declaring winnings from an offshore casino that is technically not legal in the US, do not worry. The IRS deals with collecting taxes and will not investigate nor fine illegal income from online casinos not licensed in the US.

Are there any loopholes?

We do not recommend anyone not to report their winnings to avoid having to pay taxes. But there are some common loopholes that are worth knowing about.

Report your losses too

This is not actually a loophole, but a fact that many gamblers might not know of. While you have to declare all casino winnings, you can also report and deduct gambling losses. To do so, you simply need to report all winnings and losses to see the total amount spent. Include any receipts or statements you have for your deposits, bets, losses etc.

Not reporting your winnings

As mentioned earlier, offshore casinos will not automatically report winnings to the IRS. This means that it is up to you as a player to declare any winnings from offshore gambling sites. 

So what happens if you don’t report the winnings? In the unlikely event you end up being audited and the IRS finds out about the unreported income, you face fines, penalties, and imprisonment. But if you are not audited, it is very unlikely that the government will ever find out. Ironically, you can gamble by not reporting the winnings won from gambling!