Federal Tax on Gambling Winnings, How Does It Work?

Plenty of people think that small gambling wins are not taxable. Wins of a couple hundreds dollars from a sportsbook app, a lucky night at a blackjack table, a scratch-off that paid 500 are all things that if someone did not get a tax form for, it would not seem like they are taxable. Wrong, under federal law, all gambling wins are considered taxable income, but the W-2G only tells you when the house had to report you, not whether you need to pay.

With the rise in popularity of sports betting through online apps, this type of issue has become more common than ever; apps that record all your bets, and can tally all those small wins into a hefty sum of income come tax time.

Many gamblers would be surprised to know that even simply breaking even, or losing money for the year, is not a guarantee that they will not owe money on their gambling income, as deductions for losses are only available if you itemize your taxes, and even then only the amount of your losses can be deducted from your winnings starting in 2026.

Knowing how gambling winnings are taxed, what is reported, and what should be kept track of can allow you to enjoy your winnings, and not have to face a nasty surprise when it comes time to file, or years later when you receive a notice from the IRS

Expert Perspective

This guide covers how gambling winnings are taxed, when a W-2G is issued, how withholding works, the rules for deducting losses, state taxes, and the records you should keep.

Are Gambling Winnings Taxable?

Yes. All gambling winnings are taxable as ordinary income for federal purposes, regardless of the amount or where you won. That includes casino games, slot machines, lotteries, raffles, sports betting, horse racing, poker tournaments, fantasy sports contests, and online gambling.

Winnings aren't limited to cash. Prizes such as cars, trips, or merchandise are taxable at their fair market value.

Casual gamblers report winnings as other income on Schedule 1 of Form 1040. You're required to report all of your winnings, even if you never received a W-2G and even if the amount seems small.

W-2G Reporting Thresholds

A W-2G is the form casinos, sportsbooks, lottery operators, and other payers use to report certain gambling winnings to you and to the IRS. Whether one is issued depends on the type of gambling and the size of the win.

Two points are worth remembering. First, these are reporting thresholds, not tax thresholds. A $400 win is just as taxable as a $4,000 win. Second, the IRS receives a copy of every W-2G, so if you leave one off your return, expect its matching system to notice.

Federal Withholding on Gambling Winnings

For certain larger wins, the payer is required to withhold federal income tax at a flat 24 percent before paying you. Withholding generally applies when:

Winnings from sweepstakes, wagering pools, lotteries, and similar wagers are more than $5,000, and the winnings are at least 300 times the amount wagered.

You don't provide your Social Security number or taxpayer ID. In that case, the payer may apply backup withholding at 24 percent on reportable winnings.

Slot machine, bingo, and keno winnings, along with poker tournament winnings, are generally not subject to regular withholding, even when a W-2G is issued.

Withholding is only a prepayment. Your actual tax depends on your total income and tax bracket, which can run from 10 to 37 percent. If you're in a bracket above 24 percent, you'll likely owe more when you file. If your winnings weren't subject to withholding at all, consider making an estimated tax payment so you don't face an underpayment penalty.

Can You Deduct Gambling Losses?

Yes, but the rules are narrower than most people expect, and they became stricter starting in 2026.

You Have to Itemize

Casual gamblers can only deduct losses as an itemized deduction on Schedule A. If you take the standard deduction, which many people do, your losses provide no tax benefit at all, and your full winnings are taxed.

Losses Can't Exceed Winnings

You can't deduct more in losses than you report in winnings. Gambling losses can reduce gambling income to zero, but they can't create a loss that offsets your wages or other income.

Only 90 Percent of Losses Are Deductible Starting in 2026

Legislation passed in 2025 limits the deduction to 90 percent of gambling losses, beginning with the 2026 tax year. That deduction is still capped at the amount of your winnings.

Here's what that means in practice for someone who itemizes:

In other words, a person who broke even in 2026 can still owe tax on part of their winnings.

Professional Gamblers

If gambling is your business, you report winnings and losses on Schedule C instead. Professional gamblers can deduct losses without itemizing, and for them the loss limit also covers related business expenses, such as travel and handicapping services. Those combined losses and expenses still can't exceed gambling winnings, and the 90 percent limit applies to them as well. Qualifying as a professional gambler is a high bar, based on factors like whether you gamble full time, keep businesslike records, and depend on it for your income.

How Gambling Winnings Can Affect the Rest of Your Taxes

Because gambling winnings are included in your adjusted gross income before losses are deducted, a big year can have knock-on effects even if your losses offset most of it.

A higher AGI can reduce or eliminate eligibility for credits and deductions that phase out with income. It can increase how much of your Social Security benefits are taxable. And for people on Medicare, it can raise premiums for Part B and Part D in later years. For anyone near those thresholds, it's worth planning ahead rather than finding out at filing time.

State Taxes on Gambling Winnings

Most states with an income tax also tax gambling winnings, usually as ordinary income. States handle losses differently, and some don't allow gambling losses to be deducted at all.

The nine states with no personal income tax on wages, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, generally don't tax gambling winnings for residents.

If you win in a state other than the one you live in, you may need to file a nonresident return there, and your home state will often give you a credit for tax paid to the other state. Check the rules for both states before filing.

Records You Should Keep

The IRS expects gamblers to keep an accurate record of both winnings and losses. Good records are what make your loss deduction hold up if it's ever questioned.

A gambling log or diary showing the date, type of gambling, name and location of the venue or app, the amount wagered, and the amount won or lost.

W-2G forms and other statements, including year-end win and loss statements from casinos and account histories from sports betting apps.

Supporting documents, such as losing lottery tickets, betting slips, bank and credit card statements, and ATM withdrawals at casinos.

Keep these records for at least three years after filing the return they support.

Conclusion

Every gambling win is taxable federal income, whether it's a jackpot or a modest weekend profit, and whether or not a W-2G ever arrives. Losses can help, but only if you itemize, only up to your winnings, and starting in 2026 only up to 90 percent of what you lost. Report all of your winnings, watch how a big year affects the rest of your return, check your state's rules, and keep a clear log of wins and losses throughout the year.

That way, your tax bill reflects what actually happened, and your deductions are ready to stand up if the IRS asks.

Frequently Asked Questions

Written by

Anu Gupta, CA, EA, B.Tech

Anu works with US businesses on tax and entity questions at Profitjets, from choosing a structure to the filings that follow it. She writes about the decisions owners make once and then live with for years. Connect on LinkedIn