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Knowhow: where do you have to pay tax on gambling winnings

tax on gambling winnings (1)

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This guide outlines where and when you have to pay tax on gambling winnings and the tax-free thresholds for different types of gambling.

Lottery tax and tax on gambling winnings are not required everywhere around the world. In Canada, Austria, Australia, Great Britain, France, Finland, Germany, Ireland, Turkey and Belarus, the wins are paid out in full with no tax on gambling winnings . In Spain profits up to 2500 euros are not taxed above this amount – the tax is 20%. The most complicated system for tax on gambling winnings is in the US – by law, winnings are taken into account as additional income.

USA tax on gambling winnings

Upon receipt, and depending on the jurisdiction, the winner pays two types of tax on gambling winnings: federal income tax (the rate depends on annual income) and state tax for the state the winner is resident in. In the United States, things become more complicated (and tax rates are often higher) because they vary widely from state to state with different taxes on casino winnings.

Online winnings are fully taxable so you must report wins and pay tax on gambling winnings. You may be able to deduct gambling losses in some jurisdictions, but only if you are a professional player.

All winnings for every bet you place are taxable. It doesn’t matter if the winnings come from a gambling site, sports tournament, or casino. It doesn’t matter where you win it either. You can win it at a casino, any US gambling establishment, overseas, on a cruise, or anywhere else.

If you win, the Internal Revenue Service (IRS) will put it on your tax return. For online casino and online poker services, general sales tax law applies and gross gaming revenues (the amount wagered by the players minus the winnings paid out) are taxed at 19%. In summary, it can be said that you always have to pay at least 30% tax on all your gambling winnings, regardless of whether they come from a land-based gaming facility, a state-licensed online casino or an online provider.

Different tax on gambling winnings for the different games

If you try your luck at table games, you can usually collect a larger amount tax-free, while the limit was set at 1,199 US dollars on slot machines or video poker, for example. If a player has won such a sum, an employee of the casino must come to the machine and “take” this profit. From this amount, the provider is then obliged to report this profit to the tax authorities.

The rules differ from game to game and casino to casino or state to state. The threshold from which taxes are to be paid depend on the game, for example; Poker and slots, for example, have different thresholds here.

Generally, USA resident players will be given an IRS Form W-2G with the reportable winnings in Box 1 if their wins hit the $600 level and their payout 300 times ormore the sum they bet. The tax-free ceilings thresholds are $1,200 for bingo or slots, $1,500 for keno and $5,000 for winnings from poker tournaments (the rule about ‘300 x the wager’ doesn’t apply here).

The gambling establishment or racetrack will require you to show two forms of identification — one of which has to be a photo ID — and your SSN or ITIN.

In many establishments, you’ll be given a W-2G immediately. Otherwise, the establishment must send the form to you (for 2021 winnings it must be sent by 31 January, 2022.

Do overseas visitors to the USA pay tax on gambling winnings?

It can get a little complicated for overseas players in the USA casinos (such as in Las Vegas) if they want to withdraw their winnings tax-free. On the one hand, the casinos sometimes handle the processes very differently. If you play directly on the strip, there is a good chance that the casino will apply for a so-called ITIN number for you as an overseas pplayer and then pay out the winnings in full. If the casinos are “offstrip”, the winnings may be reduced by 30% and players can secure this retrospectively after their arrival back in their home country with the tax return .

There have been several reported cases where casinos have refused to reimburse winners from overseas for their taxes. But there is no reason to do so, as these people do not have to pay taxes on their winnings. For example, there is an agreement between the US and Germany known as the double taxation agreement. Quite simply, this means that there is no tax to be paid as long as certain procedures are followed. At the time of winning, the casino should be informed of the nationality of the player and verified by correct identification such as passport or driver’s license. Once the correct forms are filled in, the player is entitled to the full winnings.

It could happen that some lesser known casinos tell their players that they have to pay taxes on their winnings, but the reality is that the US has tax treaties with many European countries . Austria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Holland, Russia, Slovakia, Slovenia, Spain, Sweden and the United Kingdom are only a part of the countries in which an agreement which states that players do not have to pay taxes on their winnings as long as the correct procedures are followed.

However, in the absence of a tax treaty, 30% of player winnings are withheld at a casino. It is therefore important that the player is well informed in advance. It is just as important that he has some form of identification such as a passport with him at all times so that he can prove his origin in the event of a big win. If taxes are improperly withheld, they can still be reclaimed, so the money is not lost forever. However, it can take a while before the player gets the money back, even if players from Europe do not actually have to pay taxes on their winnings.

For example:

From $1200 winnings, 30% tax is automatically due.
There is an agreement for some European countries (such as Germany) that this does not have to be paid.
However, only selected casinos can fill out this application. Otherwise 30% will be deducted from the profit and you can get it again afterwards via a kind of tax return.

Rule applies to any type of win, not just in Las Vegas

So when it comes to gambling in the US, be it slot machines in the online world, in Vegas or even at a racetrack, winning big can be hugely profitable; at least as long as you don’t come from the USA yourself. Then you are entitled to the full profits and you do not lose 30 percent of it in taxes. After all, a 30 percent deduction on a profit is a significant proportion of the total. So if you can make sure of the tax situation in your own country and always have the necessary proof of identity with you, you can potentially save yourself thousands of dollars.

The US casinos position themselves differently: some take over the service for new customers and apply for the US tax number – the ITIN – at the IRS. They then pay out 100% of the winnings. Other casinos, especially off-strip or not so touristy, withhold the 30% tax, regardless of whether an ITIN is available, a taxation agreement is proven, or something similar in the way of tax-relevant documentation. Basically this is so the casino cannot commit a legal error and shift the later claim back to the customer. If this is the case, you can file a tax return for the USA in the following year and claim back the retained profits.

Also read how to gamble safely: prevent gambling addiction and always check security