A W2G form, also known as a Certain Gambling Winnings form, is used to report gambling winnings and withhold taxes on those winnings. It is an IRS tax form that is filled out by the payer of gambling winnings and given to the recipient to report their winnings on their tax return.
When is a W2G form required?
A W2G form must be filled out when a payer pays out gambling winnings that meet or exceed certain thresholds. Specifically:
- Winnings from bingo, keno, slot machines, and other gambling winnings (reduced by the wager) of $1,200 or more
- Winnings (reduced by the wager or buy-in) from poker tournaments of $5,000 or more
- Other gambling winnings of $600 or more (reduced by the wager for horse racing, dog racing, jai alai, and other wagering transactions)
These thresholds apply per payer per type of gambling per year. So if you win $600 from one horse track, $700 from another track, and $1,500 in online poker tournaments, you would receive two W2G forms – one from each horse track.
What information is included on a W2G?
A W2G includes the following information:
- Your name, address, and Social Security number
- The payer’s federal identification number
- The date and amount of the payment
- The type of wager (such as horse race, keno, slot machines)
- Identification of the gambling establishment (such as name and address)
- Any local or state taxes withheld from your winnings
The form will also indicate whether you provided identification and a Taxpayer Identification Number (TIN) to the payer. If not, 28% tax may have been withheld from your winnings.
Why are taxes withheld on gambling winnings?
Gambling winnings are considered taxable income by the IRS. When you have certain amounts of reportable gambling winnings, the payer is required to withhold taxes upfront to cover part of your tax liability on those winnings.
The amount withheld varies depending on the type of gambling activity:
- For horse racing, dog racing, jai alai, and other wagering transactions (if winnings are over $600 but not more than $5,000), the rate is 24%.
- For poker tournaments (if winnings exceed $5,000), the rate is 24%.
- For state lottery winnings, the rate is set by each state.
- For bingo, keno, and slot machines (if winnings exceed $1,200 but are not more than $5,000), the rate is 28%.
- For bingo, keno, and slot machines (if winnings exceed $5,000), the rate is 28% of the first $5,000 and 31% of the amount over $5,000.
These withholding rates only apply if you provide proper identification and your Taxpayer Identification Number. Otherwise, backup withholding of 28% applies.
What should you do with Form W2G?
When you receive a Form W2G, you should do the following:
- Check it for accuracy – Make sure the information such as the date, amount, and type of gambling is correct.
- Keep it for your records – You’ll need Form W2G when you file your tax return.
- Report the income on your tax return – Report gambling winnings as “Other Income” on Form 1040. The withheld tax can be claimed as a credit.
- Pay any additional taxes – You may owe additional taxes on your gambling income beyond the withholding.
- File state taxes – Many states also tax gambling winnings, requiring you to file a state return.
Form W2G helps notify both you and the IRS of your gambling winnings. Having taxes withheld upfront can reduce how much you may owe when filing your return.
What types of gambling winnings don’t require a W2G?
You generally won’t receive a W2G for the following types of gambling winnings:
- Winnings from table games like blackjack, craps, and roulette. These are only taxable if your total winnings exceed the costs of winning those amounts.
- Winnings from bingo, keno, or slot machines that are less than $1,200.
- Winnings from sports betting pools under certain conditions.
- Non-cash prizes from contests and promotions, like free hotel stays or event tickets.
- Winnings from legal gambling activities outside the United States.
You may still need to report some of these winnings on your tax return even if you don’t receive a W2G form.
Can you reduce gambling winnings by the amount wagered?
Yes, you can reduce your reportable gambling winnings by subtracting the amount you wagered over the course of the winning activity or event. This is known as “netting” your winnings.
For example, say you won a $5,000 jackpot on a slot machine. During the time period leading up to that win, you wagered a total of $2,000. You would only have to report $3,000 ($5,000 – $2,000) as gambling income.
You need to have careful records of your wagers to back up the amounts you are netting. Things like lottery tickets, receipts, and betting slips can help document your costs.
Can gambling losses be deducted?
Yes, you may be able to deduct gambling losses on your tax return up to the amount of gambling winnings reported. This further reduces your taxable gambling income.
For example, say you have $10,000 in gambling winnings that must be reported. You also tracked $8,000 in gambling losses from the same types of wagers. You could deduct the $8,000 as an itemized deduction, lowering your net gambling income to $2,000.
You cannot deduct gambling losses that exceed winnings. The deduction only brings gambling income down to $0, it does not create a net loss that can offset other income.
Does Form W2G affect your taxes if you’re a professional gambler?
If you’re considered a professional gambler who treats gambling as a trade or business, the rules change a bit.
Professionals report gambling income and losses differently, using Schedule C. Withholding usually does not apply and losses can exceed winnings.
The issuance of a Form W2G itself does not determine your professional status. The IRS makes this determination based on factors like the time you devote to gambling, whether you rely on winnings for income, and your level of skill.
Are frequent gamblers more likely to get audited?
Frequent gambling, especially with large wins and losses, does increase your chances of being audited by the IRS. Gambling income and deductions are common red flags due to confusion over reporting requirements.
Making sure you accurately report all W2G forms, have records to back up deductions, and fully disclose gambling income and expenses will help avoid increased audit risk. Hiring a tax professional can also lend credibility.
Can you avoid having taxes withheld from gambling winnings?
The payer of gambling winnings over certain amounts is mandated by law to withhold taxes. So the only way to legally avoid withholding is to keep winnings under the reporting thresholds.
If taxes are withheld, your only recourse is to claim the withholding as a credit when you file. You also should ensure federal and state withholding is sufficient to cover your actual tax liability.
While having tax withheld upfront can create a burden, it does help avoid owing a large amount or penalty when you file your return. Proper reporting is the key to handling gambling winnings.
Sample W2G Form
Here is an example of what a W2G form looks like:
Payer name, address, EIN | 1. Lucky Horse Racetrack 123 Main St, Anytown, CA 12345 12-3456789 |
---|---|
Recipient information | John Smith 456 Oak Dr, Anytown, CA 54321 123-45-6789 |
Date won | October 16, 2023 |
Amount won | $5,500 |
Type of wager | Horse race – exacta |
Amount withheld | $1,320 (24%) |
This W2G shows a reportable horse race winning of $5,500. The racetrack withheld $1,320 in taxes at a 24% rate since the winnings were over $5,000.
The recipient, John Smith, would have to report the full $5,500 as gambling income on his tax return. He would also get a $1,320 tax credit for the withholding.
Conclusion
In summary, Form W2G serves an important purpose in reporting gambling winnings and withholding taxes. While having taxes withheld and reporting requirements may seem burdensome, proper tax treatment of gambling income helps avoid problems and penalties down the road.
Keeping accurate records, understanding the requirements, and working with a tax professional can help manage W2G reporting. With the proper strategies, you can reap the rewards of Lady Luck while staying in good standing with Uncle Sam.