Do You Have to Pay Taxes on Gambling Winnings? (Yes, Here is How)

Did you hit a jackpot on a slot machine or win big on a sports parlay? The IRS considers gambling winnings as taxable income—just like your salary. Here is the truth about Form W-2G, the 24% withholding rule, and the strict rules for deducting your losses.

BMT Tax Research Team BMT Tax Research Team · 📅 Jan 2026 · ⏱️ 5 min read · TAX TIPS › INCOME
Tax Rate
Ord. Income
10% – 37%Rate
Withholding
24%
If >$5,000Rule
Loss Limit
To Winnings
Cannot exceedFact

1. When Does the IRS Know? (Form W-2G)

Just because you didn’t get a form doesn’t mean it’s tax-free. However, the IRS definitely knows if you hit these thresholds because the payer files Form W-2G.

Game Type W-2G Threshold (Trigger) Condition
Slot Machines $1,200 Flat Amount
Sports Betting $600 AND 300x Wager
Poker Tournaments $5,000 Net of Buy-in
Keno $1,500 Net of Wager

Fantasy Sports (DraftKings/FanDuel)

These platforms usually send a Form 1099-Misc or 1099-K if your net profit exceeds $600/year. It counts as “Other Income,” not always “Gambling Winnings,” but tax rules are similar.

2. The 24% “Upfront” Tax Rule

If you win more than $5,000 (and the wager is at least 300x), the payer generally withholds 24% for federal taxes immediately.

⚠️ The “Surprise Bill” Warning

24% is just an estimate. It is not the final tax.

  • If your regular tax bracket is 12%: You will get a refund.
  • If your regular tax bracket is 37% (High Earner): You still owe 13% more in April. Don’t spend it all!

3. Deducting Losses: The “No Net Loss” Rule

You can deduct gambling losses, but the rules are strict. You cannot use gambling losses to lower your regular job income.

Scenario Win / Loss Deductible
Lucky Year +$10k / -$4k $4,000
Break Even +$10k / -$10k $10,000
Bad Year +$10k / -$50k $10,000*

*In the “Bad Year,” the extra $40k loss is wasted. It does not carry over.

The “Standard Deduction” Trap
If Itemizing (Sch A) Tax on $0
Win $10k – Loss $10k = Net $0
If Standard Ded. Tax on $10k
Cannot deduct ANY losses.
Result Pay More Tax
Taking Standard Ded. hurts gamblers.
The Catch: You Must Itemize
If you take the Standard Deduction ($14,600+), your gambling losses count as $0. You must pay tax on the full winnings ($10k) even if you lost it all back. This is why professional gamblers always Itemize.

4. Pro Tip: The “Session Method”

Do you have to report every single 25-cent spin? Generally, no. The IRS allows the “Session Method.”

  • What it is: You group all wins and losses from a single continuous session (e.g., one day at a casino).
  • How to log: Keep a diary. “Jan 5, Bellagio, Slots. Started $500, Ended $200. Net Loss: $300.”
  • Why it matters: It prevents your Adjusted Gross Income (AGI) from being artificially inflated by thousands of tiny wins that were immediately lost.

5. Frequently Asked Questions

What about State Taxes?
It depends. Most states tax winnings. Some (like California) generally do not tax lottery winnings but tax casino winnings. Some (like Nevada) have no state income tax at all.
I’m a professional gambler. Is it different?
Yes. If gambling is your actual job, you file Schedule C. You can deduct travel, meals, and data subscriptions, and your losses are treated differently. But the bar to prove this is very high (see Article 030).
What if I share a ticket?
Use Form 5754. If you split a jackpot with friends, file this form so the casino issues separate W-2Gs to each person. Otherwise, one person pays all the tax.