- Gambling winnings, just like any other income, are taxed in the United States. If you raked in gold last year for sports betting, keep reading. In this post, we discuss everything you need to know about paying tax on sports betting.
- Additionally, California, Delaware, New Hampshire and Pennsylvania don't tax winnings on sweepstakes or other gambling. But if you live in a non-taxable state and win a sweepstakes based in a.
PHILADELPHIA (CBS) — The advent of casino gambling in Pennsylvania was supposed to help homeowners in the form of lower property tax bills. Years later, however, some homeowners say they've seen little tax reduction as the casino revenue is actually going elsewhere — specifically, horse racing.
Lottery winnings are exempt because they're not earned income. That 3.8% net investment income tax doesn't apply to lottery winnings either. But your winnings are unearned income, so you'll have to pay income tax on the money at the federal level and often at the state level as well.
Pennsylvania lawmakers legalized casinos more than a decade ago, making a few promises along the way. First, legislators said slot machines would generate so much in tax revenue, people would see an average savings of $300 a year off their property tax bill.
But that promise has fallen short. This year, the average savings is just $182, according to the state Education Department.
It was even less for property owners in the Great Valley School District in Chester County: $126. In East Penn, Lehigh County, the average savings was $177.
In Cheltenham, Montgomery County, where Larry Angert lives, his property tax savings amounted to $55.
'It's a joke! It's a typical politician's promise and it's a joke,' he said.
But there was another promise Pennsylvania lawmakers made. They said taxes from casinos would help prop up horse racing. That was a promise kept.
CBS3 discovered $174 million in tax dollars, generated by the state's slot machines, went to horse races. That cash is used to fund nearly all of the races' prize money, called purses.
'The purses here are very attractive,' said Paul Trapani of Maryland.
Trapani won $35,000 at a recent race at Parx with his horse, Lord of Misrule. He says most of that will be spent out of state — either in Wilmington, Delaware, where the horse is trained, or Maryland, where he lives.
A 2017 state audit shows almost half of all horse race winnings in Pennsylvania — some $73.6 million — flowed to non-residents.
While out of state horse owners are attracted to Pennsylvania's tracks, the tax money has not been not enough to attract big crowds.
A benchmark report shows a drop in horse racing attendance statewide for the last three years.
Pennsylvania State Tax On Gambling Winnings
'I'm just frustrated with the lack of results,' said Republican state Rep. Todd Stephens of Montgomery County.
Stephens would rather reform the program or use the $174 million that went to purses last year to help plug the state's deficit. He calls the money that goes to horse racing a hand out.
'There's no question, this is corporate welfare,' he said.
Pa Tax On Gambling Winnings
'It employs 20,000 people,' countered Pete Peterson of the Pennsylvania Equine Coalition. 'It helps reserve 100,000 acres of open space, so it's a very good return on investment in my opinion.'
Peterson also believes the horse racing industry may soon be on the rebound, but he says it takes time.
'We have seen a very significant impact,' Peterson said. 'We're proud of the jobs it's created throughout the Commonwealth.'
Players dream of hitting a big jackpot when they play the slots. When that day comes for you, you'll have questions about the taxes you must pay on the winnings.
Hand Pay Jackpots
When you hit the winning combination of symbols for a large jackpot, your slot machine locks up. Depending on the machine, the lights on top of the machine may come on and start flashing, music may play or bells ring. A slot attendant arrives promptly to see what you have won.
On jackpots smaller than $5,000, an attendant verifies that you hit the jackpot and then assists you in claiming your money at the cashier's cage. In the case of a large or progressive jackpot, the casino may have technicians come and check the machine to certify that it was functioning properly when the jackpot hit. If you hit one of the wide-area progressive machines such as MegaBucks, the slot company that operates the game comes out and verifies that machine before giving you a check.
When you hit a jackpot, you have the option of taking your winnings in cash or check. Usually, large amounts are paid by check. In the case of the MegaBucks or similar multi-million dollar jackpots, you receive a check for the partial amount, and then you have 90 days to decide if you want to be paid a lump sum or an annual annuity on the balance. If you select the lump sum option, you receive only a percentage of your actual winnings. For example, the full winnings of one multi-million slot jackpot is paid in 25 annual installments, or you can take a lump sum of 60 percent of the winnings.
IRS Withholding
All casino winnings are subject to federal taxes. However, the IRS only requires the casinos to report wins over $1,200 on slots and video poker machines or other games such as keno, lottery or horse racing. When you have a win equal to or greater than $1200, you are issued a W-2G form. This form lists your name, address and Social Security number. The casinos are not required to take out withholding tax on jackpots under $5,000 as long you supply your Social Security number. If you don't provide your Social Security number, the casinos withhold 28 percent on small jackpots.
You can request a specific amount of withholding tax to be taken out of any jackpot you win. Some players like to do this to avoid a big tax payment in April when they file their income tax returns. The additional withholding may not be necessary if you keep a log book. The law allows you to deduct gambling losses up to the amount of your winnings. You can only do this if you have documentation of your losses. Keeping a diary or log book is the way to do this.
Proper Identification
Casinos can refuse to pay you until you produce proper identification—a photo ID such as a driver's license, military ID or passport.
If you don't produce an ID, you are photographed and the casino holds your winnings until you come back with proper ID. For this reason, you should always carry a valid form of identification with you when you visit the casino.
When the casino checks your identification, it also checks your age to make sure you are legally old enough to play. The minimum age for gambling varies from state to state, but under-age gamblers are not be paid if they hit a jackpot. This is the law in all jurisdictions, and it has been upheld in court.
Trapani won $35,000 at a recent race at Parx with his horse, Lord of Misrule. He says most of that will be spent out of state — either in Wilmington, Delaware, where the horse is trained, or Maryland, where he lives.
A 2017 state audit shows almost half of all horse race winnings in Pennsylvania — some $73.6 million — flowed to non-residents.
While out of state horse owners are attracted to Pennsylvania's tracks, the tax money has not been not enough to attract big crowds.
A benchmark report shows a drop in horse racing attendance statewide for the last three years.
Pennsylvania State Tax On Gambling Winnings
'I'm just frustrated with the lack of results,' said Republican state Rep. Todd Stephens of Montgomery County.
Stephens would rather reform the program or use the $174 million that went to purses last year to help plug the state's deficit. He calls the money that goes to horse racing a hand out.
'There's no question, this is corporate welfare,' he said.
Pa Tax On Gambling Winnings
'It employs 20,000 people,' countered Pete Peterson of the Pennsylvania Equine Coalition. 'It helps reserve 100,000 acres of open space, so it's a very good return on investment in my opinion.'
Peterson also believes the horse racing industry may soon be on the rebound, but he says it takes time.
'We have seen a very significant impact,' Peterson said. 'We're proud of the jobs it's created throughout the Commonwealth.'
Players dream of hitting a big jackpot when they play the slots. When that day comes for you, you'll have questions about the taxes you must pay on the winnings.
Hand Pay Jackpots
When you hit the winning combination of symbols for a large jackpot, your slot machine locks up. Depending on the machine, the lights on top of the machine may come on and start flashing, music may play or bells ring. A slot attendant arrives promptly to see what you have won.
On jackpots smaller than $5,000, an attendant verifies that you hit the jackpot and then assists you in claiming your money at the cashier's cage. In the case of a large or progressive jackpot, the casino may have technicians come and check the machine to certify that it was functioning properly when the jackpot hit. If you hit one of the wide-area progressive machines such as MegaBucks, the slot company that operates the game comes out and verifies that machine before giving you a check.
When you hit a jackpot, you have the option of taking your winnings in cash or check. Usually, large amounts are paid by check. In the case of the MegaBucks or similar multi-million dollar jackpots, you receive a check for the partial amount, and then you have 90 days to decide if you want to be paid a lump sum or an annual annuity on the balance. If you select the lump sum option, you receive only a percentage of your actual winnings. For example, the full winnings of one multi-million slot jackpot is paid in 25 annual installments, or you can take a lump sum of 60 percent of the winnings.
IRS Withholding
All casino winnings are subject to federal taxes. However, the IRS only requires the casinos to report wins over $1,200 on slots and video poker machines or other games such as keno, lottery or horse racing. When you have a win equal to or greater than $1200, you are issued a W-2G form. This form lists your name, address and Social Security number. The casinos are not required to take out withholding tax on jackpots under $5,000 as long you supply your Social Security number. If you don't provide your Social Security number, the casinos withhold 28 percent on small jackpots.
You can request a specific amount of withholding tax to be taken out of any jackpot you win. Some players like to do this to avoid a big tax payment in April when they file their income tax returns. The additional withholding may not be necessary if you keep a log book. The law allows you to deduct gambling losses up to the amount of your winnings. You can only do this if you have documentation of your losses. Keeping a diary or log book is the way to do this.
Proper Identification
Casinos can refuse to pay you until you produce proper identification—a photo ID such as a driver's license, military ID or passport.
If you don't produce an ID, you are photographed and the casino holds your winnings until you come back with proper ID. For this reason, you should always carry a valid form of identification with you when you visit the casino.
When the casino checks your identification, it also checks your age to make sure you are legally old enough to play. The minimum age for gambling varies from state to state, but under-age gamblers are not be paid if they hit a jackpot. This is the law in all jurisdictions, and it has been upheld in court.
Plan Ahead
Pa Tax On Gambling Winnings
Before you start playing your favorite slot machine you should have a plan for the day you hit a jackpot. Players become excited when they hit the big one, and this may affect the decisions you make about your winnings. It is helpful if you know ahead of time how much withholding you want taken out or whether you want a check for all or some of the amount.
