How to File a Tax Return on Lottery Winnings

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If you win the lottery or win money gambling, your winnings are considered income by the IRS and you must report them. You can report the winnings on your regular filed tax return, just like any other income.

TL;DR (Too Long; Didn't Read)

Although winning the lottery is certainly excellent luck, you will be forced to pay taxes on your good fortune. IRS From W-2G is used to report winnings derived from gambling-related endeavors.

Reporting Lottery and Gambling Winnings

You are required to report your gambling winnings, including lottery winnings, on your annual tax return. If you win a lottery and you win over a certain amount, the lottery will issue you a Form W-2G, which you'll use to add the winnings to your 1040. The Form W-2G reports your winnings and also reports whether any taxes were withheld before payout. For example, if you won $10,000 on a scratch-off card and the lottery kept $2,400 in taxes and paid you $7,600, the W-2G will reflect the amount won and the amount withheld. A copy of the W-2G will also be sent to the IRS.

You must report lottery and gambling winnings on your 1040 at Line 21, Other Income, even if you aren't issued a Form W-2G.

Deducting Gambling Losses to Reduce Taxable Income

Lottery winnings are a type of gambling winnings, and the money you spend to buy lottery tickets are treated like gambling losses for tax purposes. If you itemize your deductions, you can deduct the amount you spent to buy into the lottery as a gambling loss. The deduction reduces your taxable income and thus reduces the amount of tax you owe. However, you can't deduct more than you won. If you spent $600 on lottery tickets, for example, and you won $500, you can only deduct $500.

If you don't itemize and you use the standard deduction instead, you cannot deduct your gambling losses.

2018 Gambling Winnings Tax

You'll be issued a Form W-2G (and so will the IRS) for the 2018 tax year if:

  • You win $1,200 or more at bingo or slots;
  • You win $1,500 or more at keno;
  • You win more than $5,000 in a poker tournament;
  • For all other winnings, you win $600 or more and that amount is at least 300 times the amount of the wager; or
  • The winnings are subject to federal tax withholding.

For lottery winnings, the $600 limit applies. So if you win $600 or more in the lottery and the amount you win is at least 300 times the amount you paid to enter, you'll be issued a Form W-2G. For example, if you win $10,000 and you paid $10 to enter the lottery, the winnings are 1,000 times the amount of the wager and are more than $600, so you'll get the form and must report the winnings.

Casinos and lottos must withhold federal income tax from your winnings if the winnings minus the wager are more than $5,000 and the winnings are at least 300 times the wager. In the example above, the $10,000 winnings are subject to withholding because the winnings are more than 300 times the wager. Plus, the winnings minus the wager are greater than $5,000. Withholdings are calculated on the net winnings, which means they're calculated on the winnings minus the wager.

The tax on gambling winnings for the 2018 tax year is a flat 24 percent. If your $9,990 winnings (the $10,000 minus the wager of $10) are subject to withholding, the lotto should withhold $2,397.60.

2017 Gambling Winnings Tax

The reporting requirements for the 2017 tax year were the same as the 2018 requirements; however, gambling winnings for the 2017 tax year are taxed at 25 percent.

    Warnings

  • If you have lottery winnings of between $600.00 and $5,000, you will receive a W-2G form but not have any money withheld for taxes. This will count as income for the year so be sure to save enough money to pay the extra income tax.
  • Many states such as Arkansas, Oregon and Kentucky tax lottery winnings. This adds to your tax debt and is in addition to any federal taxes due. Check with your state tax board to find out the rules in your state. If you have to file, the tax board can tell you which forms to use.
  • If you win over $5,000 in the lottery, the state government will withhold 25 percent of the money for taxes. If your state taxes gambling income an extra amount equal to your state income tax rate – such as 5 percent, 7 percent or 10.8 percent – will also be held back. The check you get will be for the amount that remains after taxes.

    Tips

  • Even if you don’t have money withheld from your winnings, you may have to pay an estimated tax before your money is disbursed. Depending on your situation, you might get some of that money back when you file taxes or you may end up owing more.

References

About the Author

Rebecca K. McDowell is an attorney focused on debts and finance. She has a B.A. in English and a J.D. She has written finance and tax articles for Zacks and eHow.

Photo Credits

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