The IRS treats table games differently from slot machines when it comes to taxing your gambling wins, but modern technology sometimes makes that distinction blurry. The tax agency views electronic table games as being a form of slots. On the other hand, online blackjack or roulette can still be a table game if there’s a real human dealer on live stream.
The tax laws around gambling are confusing. Ultimately, US gamblers owe federal taxes on all net winnings from gambling. However, there are different thresholds for tax reporting and withholding depending on what you’re playing.
Casinos must issue players a W-2G tax form for each win over a certain amount. A W-2G is similar to W2 or 1099 forms, disclosing sources of income for tax purposes.
The basic rules for withholding are:
- All slots wins of $1,200 or more, including the player’s stake.
- All table game wins of $5,000 or more, including the player’s stake, provided the payout is at least 300x the bet. (Wins of $600 or more generate a W-2G but no withholding).
- All poker tournament wins of $5,000 or more.
That difference is based on the assumption that table games are typically played for higher stakes but with lower relative payouts. The IRS doesn’t want to deal with a W-2G form for every hand a high-rolling blackjack player won. Unfortunately, electronic games confuse the issue.
Electronic Tables at Retail Casinos Are Considered Slots
Electronic table games are precisely what they sound like. There is no live dealer, and the interface is digital. Visually, they tend to be more elaborate than slots, with some physical equipment involved. However, players load their money and print out vouchers for their winnings as they would with a slot machine and make their bets using a screen.
Because the casino doesn’t need to pay a dealer, electronic games often offer lower stakes than regular tables. The gameplay is faster by the same token.
However, the absence of a dealer also matters to the IRS, which uses that as the determining factor for its reporting thresholds.
That means any win over $1,200, including the bet, will require the online casino to issue players a W-2G form. That’s important to remember before playing such games for high stakes. For example, a bet of $600 on a hand of electronic blackjack with a win of $1,200 will result in a W2-G and tax withholding. The same would be true for a $40 single-number bet on electronic roulette, paying out at 35-1.
Live Dealer Games at Online Casinos Are Considered Tables
The critical element that IRS considers is the presence or absence of a live dealer. Electronic roulette may still use a physical wheel rather than a digital random number generator, but it’s a slot machine to the IRS because there’s no human spinning the wheel.
However, that logic cuts both ways.
Most online table games are slots for the same reason electronic ones at retail casinos are. However, the IRS views live dealer table games at online casinos as true table games, because there’s a human involved. Casinos will only issue a W-2G for these games if winnings are 300 times the wager and at least $600. So, even significant wins often do not generate a W-2G.
The downside is that online table games don’t get the same withholding exemption as slots. Online casinos don’t have to withhold taxes on slots jackpots like their retail counterparts, provided the customer is a US citizen or resident. However, they still need to withhold on any live dealer wins which generate a W-2G if the total payout is $5,000 or more.
Either way, the amount of tax you’ll owe at the end of the year is the same. You’ll owe money on your net winnings if you’re ahead come tax time. If you had winnings withheld but can offset them with losses, you’ll get that money back. However, getting unexpected withholding is no fun in the short term.
CT and WV Online Casino Players at Risk of State Taxes
The IRS allows players to deduct their gambling losses from their winnings. However, you must keep detailed records to make sure you can reclaim any taxes withheld as the result of a jackpot.
Also, losses cannot exceed winnings. So, for example, if a player wins $1,000 but has lost $2,000, they can deduct only $1,000.
There’s an important caveat to this for players in some states. Not every state follows the federal government’s lead regarding deducting losses.
Most states with online casinos do, but Connecticut and West Virginia are exceptions. If you live in either of those states and book a win that generates a W2-G, you may owe state taxes at the end of the year, even if you lost money. That’s because these states charge income tax on federally reported gambling income but do not allow the deduction of losses.
The good news is that WV just passed a bill to change that. That will leave players in CT as the only ones unable to deduct losses.
Must All Gambling Wins Be Reported To The IRS?
According to the IRS, all gambling wins must be reported on your 1040 form as other income. Depending on the size of your win, casinos might issue you with a W-2G form, but even if you don’t receive one, you’re still responsible for reporting your wins. Some players choose not to add gambling wins without W-2G to their federal income. That is the same as not adding any other income to their returns. They would be breaking the law and will be subject to penalties.
Unlike other income, every win gets a separate W-2G. So if a player has multiple wins, casinos will send them a form for each. Casinos will also withhold a 24% federal tax from most retail and some online wins requiring a W-2G. That percentage goes up to 30% for non-US taxpayers.