Gambling has become a prominent form of gaming with the emergence of new casinos and iGaming technologies. However, many punters tend to overlook a very important aspect of this high-stakes activity: taxes. Once the thrill of your win wears off, you very quickly become aware of the uninvited (and rather annoying) guest at your table, named the IRS (Internal Revenue Service). In light of this guest's inevitable appearance, it quickly becomes apparent that the real house edge is actually how much of your winnings you get to keep after paying the piper. As such, knowing how exactly to navigate the tax landscape as a regular punter is vital to protecting your bankroll.
The Digital Jackpot: Taxes on Online Casino Winnings
A common misconception is that online gambling winnings are taxed at a lower rate or avoid deductions altogether. However, this is not the case at all, as the IRS views online winnings the same way it views physical winnings. In essence, these are classified as "other income" and can be taxed at your ordinary income tax rate, which is why building your gambling strategy around this is vital. Remember, taxes are inevitably going to eat into your net earnings, so preparing for this by taking advantage of certain aspects can help you balance things out.
An advantage of iGaming platforms is that online casinos offer something their physical counterparts do not: bonuses, promotions, and other perks. For one, gambling expert Matt Bastock provides a great, in-depth CasinoBeats's analysis that takes a closer look at casino-specific payout rates, RTP games, bonus terms and conditions, and bonus types. With insight provided by a guide like this, it can help you create a tax buffer of sorts. A good example of this would be how a 100% deposit match could perfectly help you offset the liability you'll owe at the end of the tax year. In maximizing your EV (Expected Value) with these bonuses and promos, you're ensuring that, at the very least, you aren't paying the IRS out of your own pocket.
The Paper Trail: When the W-2G Shows Up
As mentioned, gambling wins (this includes casino, iGaming, sports betting, and even lottery winnings) fall into the "other income" category, no matter how big or small the amount. This is crucial to understand, as you will need to pay taxes regardless of whether you are a pro or casual player. Additionally, once your winnings hit a certain threshold, this triggers a Form W-2G, wherein the casino will withhold a 24% federal tax upfront on any big wins when backup withholding applies.
This could range from a starting point of $1,200 for slots or bingo games, and more than $5,000 for poker tournaments. Even if you do not receive a W-2G form, every single penny of gambling winnings you make needs to be reported legally. Do not try to convince yourself that if you didn't send a form, you don't owe, because it will come back to bite you later on.
Gross Winnings vs. Net Gains: A Crucial Distinction
Another common tax misconception is that you can just subtract your losses from your winnings and then report them as is on your tax return. This is an absolute no-go: do not do this. Instead, the IRS will need to see the entirety of your winnings as income first, meaning you need to add the full amount without any deductions. Upon doing so (and depending on how much winnings you accumulated throughout the year), you could be impacted in a number of ways.
First, these winnings could push you into a higher tax bracket, which equates to a higher tax deduction from your "income". Alternatively, it could affect your eligibility for certain credits despite your net earnings for the year showing up as zero. While you are allowed to deduct losses, there is a specific process for that.
Deducting Losses: The "How-To" for Itemizers
Before going through with any loss deductions, it is important to understand the mechanics of the process. For one, gambling losses (while they are subject to deductions) can only be deducted up to the amount of winnings you earned for the year. Even more, you need then not take the standard deduction, but rather itemize your deductions on Schedule A instead. This approach can help veteran punters save quite a bit of money. Of course, this opens a new can of worms for many casual gamblers, in that standard deductions are so high that itemizing losses does not benefit them at all.
As such, if you are a casual gamer, this is vital to keep in mind. Beyond this, you also want to avoid deducting more losses than reported wins, as this might seem like a smart way to lower taxes on your day job. Do not do this; it will get you in serious trouble. In fact, starting in the 2026 tax year, a new Bill (effective 1 January 2026) will ensure that loss deductions will be limited to 90% of losses. Whereas previously, if you won $10,000 and lost the same amount, you could deduct 100% of that and avoid paying taxes on any of the winnings for the year. The new act will make it so that you can only deduct $9000 (90%) and pay tax on the remaining $1,000.
Record-Keeping 101: Saving More Than Just Cents
A final and very important pro-tip is to keep documentation of every single win and loss. Since the IRS requires a log of sorts, make sure to save dates, bet types, locations (if heading to a physical casino), and even the people you are playing with. While this can sound like a lot of admin, you want to think of your gambling as a small business with meticulous records, as this can help you defend yourself should the IRS ever come knocking.