Gambling Winnings

Gambling winnings are amounts won from a wager or game of chance, including lotteries, raffles, sports betting, horse and dog racing, bingo, keno, slot machines, card games and casino table games. The IRS's Topic 419 says plainly that they "are fully taxable and you must report the income on your tax return", and that gambling income includes "cash winnings and the fair market value of prizes, such as cars and trips."

Winnings and losses are treated separately rather than netted. Winnings are reported as income; losses are a separate deduction under section 165(d) of the Internal Revenue Code, which a casual gambler can take only by itemizing and only up to the gains from wagering that year.

Reporting by the payer. A payer files Form W-2G, "Certain Gambling Winnings", when a win reaches the reporting threshold for its type of game. For horse and dog racing, lotteries, sweepstakes and wagering pools the payout must also be at least 300 times the wager; bingo, keno and slot machines have no such test. For calendar years after 2025 the IRS adjusts the minimum threshold for inflation each year and publishes each year's amounts. Poker tournaments and sports wagering have their own rules as well. A W-2G is a reporting form, not the test of taxability: a win below the threshold, a sports bet settled in an app, or a prize from an office pool is still income.

Withholding. Regular gambling withholding at 24% applies when winnings from a lottery, sweepstakes, wagering pool or a wager paying at least 300 times the stake exceed $5,000 after subtracting the wager. Bingo, keno and slot machine wins are not subject to regular withholding, but any reportable win can be subject to backup withholding at 24% if the winner does not provide a taxpayer identification number. Withholding at 24% can fall short of the tax actually owed by someone in a higher bracket, and the IRS notes that winnings may call for estimated tax payments.

Losses, and the 90% rule. Under section 165(d)(1), the deduction for losses from wagering transactions "shall be equal to 90 percent of the amount of such losses" and "shall be allowed only to the extent of the gains from such transactions" for the year. Both limits apply, so the deduction is the smaller of 90% of losses and the year's winnings. The 90% rule took effect for tax years beginning after 2025 under the One Big Beautiful Bill Act; before then, losses could offset winnings dollar for dollar. Losses are claimed on Schedule A as an "other itemized deduction", which requires giving up the standard deduction, and unused losses do not carry to another year.

Records. The IRS requires an accurate diary or similar record of winnings and losses, backed by receipts, tickets, statements or other documents showing both. Casino player-card statements and app account histories help, but the burden of proving losses is on the taxpayer.

Professional gamblers. Someone in the trade or business of gambling reports on Schedule C rather than as an itemized deduction, and section 165(d)(2) treats their other business expenses, such as travel, as losses from wagering transactions. So those expenses too are deductible only up to gambling gains, and the 90% rule applies to the total.

Nonresident aliens. U.S.-source winnings of a nonresident alien are reported on Form 1040-NR, and Topic 419 says nonresident aliens who are not residents of Canada generally cannot deduct gambling losses. Some treaties and game types change the result.

1. Report every win. Total all gambling winnings for the year, from W-2Gs and from your own records, and report them as income on Schedule 1 of Form 1040.

2. Total the losses. Add up the year's wagering losses, supported by records.

3. Apply both limits. The deduction is the smaller of 90% of the losses and the total winnings.

4. Decide whether to itemize. The loss deduction exists only on Schedule A. If your total itemized deductions, including the gambling losses, do not beat the standard deduction, the losses produce no tax benefit.

5. Credit the withholding. Tax withheld on a W-2G is claimed as a payment on the return.

An example of how the 90% rule bites: in 2026 Dev has $10,000 of gambling winnings and $10,000 of losses, and he itemizes. The deduction is the smaller of 90% of $10,000, which is $9,000, and his $10,000 of winnings. So he deducts $9,000 and pays tax on $1,000 of net winnings in a year he broke even. His adjusted gross income still rises by the full $10,000.

If Dev had lost $12,000 instead, 90% of the losses would be $10,800, more than his winnings, so the winnings cap of $10,000 would apply and none of the winnings would be taxed. If he takes the standard deduction, he deducts no losses at all and all $10,000 is taxable.

Pros

• Itemizers can still deduct most of a year's losses against that year's winnings.
• Withholding on large wins means some of the tax is paid when the money arrives.
• A professional gambler can deduct business expenses, within the same wagering-gains limit.

Cons

• Every dollar won counts toward adjusted gross income, which can raise the taxable share of Social Security benefits, Medicare premiums and other income-tested items even when losses cancel the winnings.
• Non-itemizers get no deduction for losses, so they are taxed on gross winnings.
• From 2026, the 90% rule taxes a gambler who breaks even and increases tax for one who comes out behind on the year but not by enough.
• The 24% withholding rate can understate the tax owed, leaving a bill or a penalty at filing time.