Like all other taxable income, the IRS requires you to report prizes and winnings on your tax return, too. That means you might have to pay taxes on those winnings. Your winnings end up being included in your taxable income, which is used to calculate the tax you owe. But before you report your prize and gambling income, you need to know what does and doesn't count as income.

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The following rules apply to casual gamblers who aren't in the trade or business of gambling. Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn't limited to winnings from lotteries, raffles, horse races, and casinos. The following rules apply to casual gamblers. Gambling winnings are fully taxable and must be reported on your tax return. You must file Form 1040 (PDF) and include all of your winnings. Your gambling winnings are generally subject to a flat 24% tax. However, for the following sources listed below, gambling winnings over $5,000 will be subject to income tax withholding: Any sweepstakes, lottery, or wagering pool (this can include payments made to the winner(s) of poker tournaments).

Gambling and lottery winnings and losses

Whether you play the lottery, slots, blackjack, roulette or another game considered gambling, you must report all of your winnings even if you end up losing money overall.

The IRS states that you're supposed to keep a diary or similar record that details your winnings and losses, which includes information such as:

• The dates and types of specific wagers.
• The amount you won or lost.
• The address of the gambling establishment.
• The names of other people present with you at the gambling establishment.

You should also keep other documentation that demonstrates your gambling activities such as,

• bank withdrawals,
• losing lottery tickets or
• payment slips from the gambling establishment.

Depending on the size of your win, you may receive a Form W-2G, Certain Gambling Winnings and may have federal income taxes withheld from your prize by the gambling establishment.

Gambling winnings are unique because you can also deduct your gambling losses and certain other expenses, but only in specific circumstances (see our article about this).

• You don't report your gambling income net of expenses, though.
• Instead, you must report your gambling income and gambling expenses separately.
• Unfortunately, losses can only be deducted if you itemize your deductions.

You don't need to worry about which forms you need to fill out, though. TurboTax will ask you simple questions to get the necessary information to fill out the forms on your behalf based on your answers.

Other types of winnings

Casinos and lotteries aren't the only ways you can win money or other prizes. If you've received any kind of income from the following sources, you'll have to report it to the IRS, as well.

• Cash prizes: If you enter a drawing and win $1,000, you've won a cash prize. Other ways to win cash prizes could include sweepstakes, a game show or reality TV competition. You'll need to include all prizes as income on your tax return, even if they're as small as a dollar.
• Noncash prizes: The IRS considers noncash prizes as income you should report as well. Whether you win a $25 gift card to your favorite restaurant from a radio contest, a new TV, a year's supply of a particular product, a luxury vacation for two to Europe or a brand-new car from a game show, you're required to report the fair market value of these prizes as other income on your tax return.
• Fantasy sports and pooled winnings:Fantasy sports and pooled winnings with friends, coworkers or anyone else also need to be reported. Your friends won't issue you a Form 1099-MISC, or Form W-2G, but that doesn't mean the income shouldn't be reported.
• Gifts: Gifts aren't considered a form of winnings in the IRS's eyes even if they're a windfall for your situation. In the vast majority of cases, the donor is responsible for paying any gift tax required. However, it is possible for the person receiving the gift to agree to pay the tax instead.
• Inheritance: When you receive an inheritance, you generally aren't obligated to pay any taxes on it on the federal income tax level. That said, the estate of the deceased person may have to pay an estate tax before passing on your inheritance to you.

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Frequently Asked Questions

Whether you've already won the grand prize or think this is going to be your lucky year, it pays to have your questions answered before it comes time to file. Here are some of the most popular questions and what you need to know.

Is your tax bracket affected by what you win?

Your winnings are part of your taxable income, which determines what marginal tax bracket you fall into. Only the additional income in the higher tax brackets will be taxed at the higher rates. Any income that falls in the lower tax brackets will be taxed at the lower rates.

Are the tax rules different if you receive a lump-sum payout vs. a payout in pieces over time?

The rules regarding tax on winnings are the same whether the prize is issued in a lump-sum payout or in pieces over time. You report the income when you receive it. That said, the tax impacts can be different based on the year you receive the income because the amount of tax you pay is based on your total taxable income each year.

• If you receive a large payout in a single payment, that payout could push you into higher marginal income tax brackets.
• If you spread it out over multiple years, you may end up staying in lower tax brackets.

What if I didn't receive a Form 1099-MISC or a Form W-2G?

Gambling Winnings Tax Rules

It doesn't matter if you receive a 1099-MISC or a W-2G reporting your winnings or not. You'll still need to report all income to the IRS. You just have to add your unreported winnings amounts to the applicable lines on your tax return.

Thankfully, you don't need to know where to place each item of unreported income on your tax return. TurboTax can help by asking simple questions to make sure you're reporting all of your income and winnings that need to be reported.

How can you prepare yourself and your finances after you win but before you file your tax return?

After you win money, you should take steps to prepare for the potential tax impact. Ideally, you should set aside a portion of those winnings to cover the taxes you'll owe, so you have the money when it's time to pay your taxes.

Keep in mind, you can't wait to pay taxes until the tax deadline if it's over a certain amount. See the section 'Do I need to pay estimated taxes' in our article 'Estimated Taxes: How to Determine What to Pay and When' to determine if you meet these thresholds.

• You'll have to run the numbers, especially if you win a large amount of money, to see which marginal income tax bracket the winnings will fall in. Then you can estimate how much you'll potentially owe.
• TurboTax's TaxCaster can help you estimate your taxes.
• Depending on the size of the prize, you may want to make a quarterly estimated tax payment as well.

Your taxes have many moving parts that could result in a higher or lower amount owed than your estimate if things don't go exactly as you plan. If you set aside too much money, you can always reclaim the money later, but if you don't set aside enough, you may find yourself owing a big tax bill come tax time.

Remember, with TurboTax, we'll ask you simple questions and fill out the right tax forms based on your answers to maximize your tax deductions.

So you’ve managed to beat the oddsmakers at a Tennessee sportsbook? Or perhaps you’ve hit it big playing Mega Millions, Powerball or another Tennessee Lottery game?

Not to rain on your parade, but the IRS considers any gambling winnings taxable income. This includes cash and material prizes such as boats and cars.

According to federal law, you must report your winnings on your federal tax return for the appropriate year. This is especially crucial for Tennesseans now that online sports betting is legal.

Tennesseans might have many questions related to gambling and taxes. These might include how to report your winnings to the IRS, along with what rate the IRS taxes those winnings at.

Fortunately, it isn’t that complicated. The IRS has clear procedures in place for how to handle such instances. When you know those procedures, you can rest assured that you’re compliant with federal laws.

Sportsbooks and the Tennessee lottery can help you out in this regard as well. They also have to follow federal and state reporting procedures, so their protocols can make the process of reporting winnings even easier for players.

Here are your obligations under federal and state laws if you’ve successfully gambled in Tennessee.

How much will the IRS tax my gambling winnings?

Effective for tax years after 2017, the federal withholding rate for gambling winnings of $5,000 or more is 24%. That’s a cumulative amount for the entire year, so even if you win $1,000 on five or more separate occasions during the year, you still need to report your winnings.

Sportsbooks and the Tennessee lottery typically withhold 25% of your total winnings for tax purposes. That’s only if you provide the sportsbooks with your Social Security number, however.

If you choose to withhold your SSN from sportsbooks, they typically withhold 28% of your winnings. Sportsbooks need your SSN to accurately report their business dealings to the IRS.

Tennessee has no state earned income tax. Your winnings may be subject to the Hall Income Tax, however, for the 2020 tax year and prior years.

It really depends on how you use those funds. The state doesn’t consider your lottery and sports betting winnings themselves taxable income, but if you use the money to produce certain kinds of dividends and interest, the state may tax those dividends and interest.

There are many exceptions to the taxable dividends and interest list, such as interest paid on personal savings accounts. The Hall Income Tax sunsets completely on Jan. 1, 2021.

For 2020, the rate is 1%.

The IRS has a form specific to reporting gambling winnings. That’s where the Tennessee sportsbook apps and the Tennessee lottery can be of the greatest assistance to you.

Federal form W-2G, certain gambling winnings

The IRS puts the burden of sending out the W-2G on the organization that pays out winnings. If you win any cash or prizes this year, you should get a W-2G from that entity in plenty of time to file your federal taxes.

Fortunately, there’s nothing you need to do to the form. Do not include it in your IRS filing. You will need it when you file your federal income tax return, however. You should keep a copy for your own records for at least five years.

If your winnings reach one or more of the following thresholds, you should get a W-2G from the sportsbook you won with or the Tennessee lottery. Each entity you successfully gambled with will provide you with a separate W-2G.

Those federal thresholds are:

• Winnings of $1,200 or more from a bingo game or slot machine
• Winnings, minus your wager, of $1,500 or more from a keno game
• Winnings, minus your buy-in or wager, of more than $5,000 from a poker tournament
• Winnings of $600 or of a value at least 300 times the buy-in/wager or more, except those from bingo, keno, poker tournaments and slot machines
• Winnings that are subject to federal income tax withholding for any other reason

What if I don’t receive a Form W-2G?

If you’re a legal US citizen or resident, you must report your eligible gambling winnings on your federal earned income tax returns regardless of whether you receive a Form W-2G or not.

Contact the sportsbook operator or the Tennessee lottery if you need a W-2G and don’t receive it in a timely manner, there may have been an error.

If you still can’t get a W-2G, use Form 1040, Schedule 1 to report your winnings. Use the “Other Income” section to denote the value of your cash and material prize winnings.

Include that form with your other documents in your IRS filing for the appropriate year. There’s one more step you need to take even if you do receive a Form W2-G.

How to report winnings on your federal income tax return

The IRS requires you to report your gambling winnings on Form 1040, Schedule T, Line 8. If you do get a Form W-2G, this is a very simple process.

Since you are reporting your gambling winnings from all sources, gather up all your relevant W-2G forms (if you have more than one). If all your winnings came from a single source, this process is even easier.

Simply transfer the amount in Box 1 on your W-2G form to Line 7a of your 1040. If you received more than one W-2G, you will need to add up all the amounts in Box 1 on all the forms and then put that total in Line 7a of your 1040.

The same process applies if there is an amount shown in Box 2 on your W-2G forms. Include that amount in your total federal income tax withheld on Line 17 of your 1040.

This is the correct procedure for reporting gambling winnings for an individual. If you’re part of a group that won a cash or material prize, the process is a little different.

What if I’m part of a group of people that wins a cash prize?

If you and several of your co-workers pool resources to buy lottery tickets and win, or you go in with a couple of friends on a big sports wager, the IRS still considers your winnings taxable income. There’s a form just for these occasions.

That’s Form 5754. The sportsbook and/or the lottery use this form to prepare the W-2G when a group of people wins a prize, or the person receiving gambling winnings isn’t the actual winner.

The sportsbook or the lottery should send you a blank copy. The onus is on you to accurately fill it out and return it to the party granting the prize. They need it for their tax records.

Just like the W-2G, you shouldn’t include this form in your federal tax return. You should keep it for your own records, however. The minimum recommended time to do so is five years.

Gambling Winnings Tax Rules 2019

Are gambling losses tax deductible?

You can deduct your gambling losses. You must itemize your deductions in order to take advantage of that allowance, however. The IRS does not allow you to deduct more than you win in a tax year or deduct your expenses incurred while gambling.

Just like with any other deductions you claim, you should keep all relevant paperwork for a period of at least five years. This includes:

• Receipts for your wagers that denote the date and type of bet
• The name of the sportsbook or the location where you bought a lottery ticket
• The amount lost or won
• Wagering tickets
• Debit card records
• Bank statements
• Canceled checks

Many sportsbooks keep a running account of your activity in your account profile. This can make it easy to identify your total losses for the year and see if it would be worthwhile to itemize your deductions and report them.

Remember, deducting your losses isn’t a matter of subtracting your losses from your winnings and then simply reporting what’s leftover. You must report all your qualified winnings to the IRS regardless of any losses you suffer.

What if I win a Mega Millions or Powerball jackpot?

The IRS considers cash or material prizes won playing multi-state lotteries as taxable income. You would report such prizes using the same methods as if you won a prize playing a Tennessee lottery game.

The same goes for if you claim winnings in Tennessee but maintain your legal residence in another state.

The process of reporting the value of non-cash prizes is somewhat murky, however.

The IRS does supply a definition of the “fair market value” of material prizes. That is, “the price for which you could sell your property to a willing buyer when neither of you has to sell or buy and both of you know all the relevant facts.”

The IRS does not supply a formula to determine that value, however. You will have to check out the going rates for similar items in your area to determine the fair market value for your material prize.

Gambling Winnings Tax Rules New York State

Once you’ve determined that, you need to include that with your winnings for the year on your Form 1040. If you’re unsure of how to value your prize, this is where contacting the IRS may be beneficial.

Online sports betting and taxes

The IRS makes no differentiation between winnings won in-person or online in terms of gambling. Additionally, the IRS considers sports betting winnings taxable income.

You must report all your qualified sports betting winnings, whether they came through online or retail channels, to the IRS. The general rule of thumb is to report your winnings once you hit the threshold of $600 or winnings of 300 times the amount you have wagered in a tax year.

Tax Rules For Gambling Winnings

The sportsbook should send you a Form W-2G. This will make it easy for you to report your winnings on Line 7a of your Form 1040 for the IRS.

Tennessee is among the best states for gambling purposes, as the state does not tax your winnings in most cases. Following this advice, you can fulfill your federal obligations and enjoy the remainder of your winnings.