Yes, gambling winnings are considered taxable income. This applies to all types of gambling winnings, including sports betting, casino gambling, betting on horse races, the lottery and even raffles. If your winnings exceed certain thresholds, the sports betting app, parlor or casino through which you’re gambling should provide you with a Form W2-G and report your winnings to the IRS.
These thresholds are:
- $5,000 for poker tournaments (minus your buy-in)
- $1,500 for keno (minus your bet amount)
- $1,200 for slots and bingo
- $600 for sports betting, horse racing and fantasy leagues
Even if your winnings don’t exceed the relevant threshold, you still technically owe 24 percent of your winnings to the federal government and the appropriate percentage to Arizona. However, you’ll only be given the W2-G if your winnings exceed those minimum amounts.
All other gambling proceeds, including gambling income below those thresholds, should technically be reported as other income on a Form 1040.
The convenient thing about the W2-G is the sportsbook or casino should withhold federal income tax from your winnings. If you’re just filing a Form 1040, you could be expected to make estimated tax payments in lieu of traditional withholding.
Federal and Arizona State Sports Betting and Gambling Winning Taxes
The IRS taxes all gambling winnings at a flat 24 percent rate, but Arizona taxes gambling winnings based on your overall income. The rates are:
- 2.59 percent for married filers making $0 to $53,000 or single filers making $0 to $26,500
- 3.34 percent for married filers making $53,001 to $106,000 or single filers making $26,501 to $53,000
- 4.17 percent for married filers making $106,001 to $318,000 and single filers making $53,001 to $159,000
- 4.50 percent for married filers making $318,001 or more and single filers making more than $159,001
Taxes also apply to non-cash winnings from gambling, including things like trips or vehicles. You’ll be expected to report the fair cash value and pay the appropriate percentage to the IRS and Arizona.
Can You Write Off Betting Losses?
Yes, you can deduct your losses if you itemize your deductions instead of taking the standard deduction. However, your gambling loss deduction shouldn’t exceed your winnings. For example, if you reported $6,000 of gambling income and $8,000 of losses, you’d only be able to deduct $6,000. Conversely, if you reported $12,000 of gambling income and lost $8,000, you could deduct all your losses and only pay tax on the remaining $4,000. Losses in excess of your winnings can’t be carried over to future tax years.
The IRS isn’t known for being overly trusting on claimed deductions. You should be prepared to provide records to back up your gambling loss deduction, including:
- The date of the loss
- The type of gambling
- The contact / location info of the sportsbook / casino
- Specific amounts of your winnings and losses
- Receipts for gambling-related deductions added into your losses (such as travel costs)
Arizona Lottery Taxes
Lottery taxes can get a bit more complicated. The Arizona lottery is legally required to withhold 24 percent for federal taxes and 4.8 percent for state taxes. If a group wins the lottery in Arizona, the tax burden is shared equally among them. Arizona is also one of only two states (the other being Maryland) that levies state taxes on out-of-state winners of multi-state lotteries, like Mega Millions and Powerball.
Is Gambling and Sports Betting an Effective Way to Save for Retirement?
Although a lot of Arizonans enjoy gambling more than saving for retirement, sports betting is not a feasible alternative to traditional financial planning and retirement savings.
A properly diversified, wisely invested retirement plan managed and administered by the fiduciaries at Fullerton Financial Planning may represent an ideal solution for Arizonans who enjoy trips to the casino or sports betting.
A well-funded nest egg allows retirees to enjoy their post-work life to the fullest. Many retirees can budget for trips to the casino and some responsible sports betting.
If you’d like to learn how Fullerton Financial Planning can make your retirement dreams a reality, call (623) 974-0300 to speak with a financial advisor today.
