It’s not true that the “house” always wins — but it’s close. Various estimates put casino “winners” — gamblers who walk away from a casino with more money than they entered it with — at somewhere between 10% and 15%. If you’re lucky enough to beat the odds and hit the jackpot at some point, take a breather before spending that mad money. Gambling winnings are subject to tax. There are also other considerations if you prevail at the racetrack, score in a fantasy football tournament or win a game of poker.
Taxing Winnings
In general, winnings from casinos, lotteries, raffles, sports betting, horse races, sweepstakes and other contests and games of chance are taxable. Winnings include cash and goods appraised at their fair market value. It doesn’t matter if they come from a glitzy casino or a local charity’s fundraiser. If you’re a casual (as opposed to a pfessional) gambler, winnings from all gambling activities are subject to federal tax.
Amateur gamblers report their winnings on IRS Form 1040, under “Other income,” and winnings are typically taxed as ordinary income. The casino, nonprofit or other game sponsor may withhold taxes from your winnings and provide you with IRS Form W-2G, “Certain Gambling Winnings,” which will be used to complete your tax return. If you itemize deductions, you’re allowed to claim gambling losses. However, the deduction is limited to the amount of your winnings for 2025. Starting in 2026, only 90% of gambling losses will be deductible.
State tax may also apply to gambling winnings. In general, you’re responsible for paying tax to the state where you won money or a prize, not to your state of residence (if they’re different).
Spending a Windfall
If you gamble occasionally for entertainment, a big win probably comes as a pleasant surprise. Depending on the amount, you may be tempted to spend it right away in five-star restaurants or on luxury goods. But before buying anything, think about other ways you could use the money. If you have debt (besides a mortgage or other lower-interest-rate debt), paying it down should be your first priority when you have extra funds.
Besides paying off debt, think about contributing winnings to:
- An emergency savings fund, which usually should equal three to six months of current expenses,
- A traditional or Roth IRA, or
- A 529 college savings plan, if you have children.
These options may not sound as “fun,” as spending your jackpot immediately, but they’ll provide longer-term benefits. This doesn’t mean you shouldn’t enjoy your win. You can always go out for a nice meal or make some other small expenditure to commemorate your gambling victory.
Knowing When It’s a Problem
Obviously, a once-a-year trip to Las Vegas or Atlantic City where you lose a small amount but enjoy yourself doing it, probably isn’t problematic. However, many Americans have gambling issues — and until they deal with them, they aren’t likely to be financially secure.
The National Council on Problem Gambling (NCPG) estimates that 2.5 million Americans have a severe gambling addiction and another five to eight million have mild to moderate gambling problems. Signs of a serious issue include thinking about gambling all the time, feeling out of control and gambling despite frequent losses and mounting debt. In extreme circumstances, gambling problems can lead to loss of a job or family, bankruptcy, and other legal and financial problems.
If these signs sound familiar and you suspect you or a loved one has a gambling disorder, seek help from NCPG (ncpgambling.org), Gamblers Anonymous (gamblersanonymous.org) or a state government agency.
Benefits of “Going Pro”
Although few casual gamblers make the leap, there are certain tax advantages to “going pro.” If you meet the IRS’s requirements and qualify as a professional gambler, you can deduct gambling losses, subject to applicable limits for the tax year (see main article). Professional gamblers can also deduct wagering-related business expenses. Nonwagering expenses should be “ordinary and necessary” for your gambling business and could include transportation, meals (50%), tournament admissions and gambling-related media subscriptions.
To qualify as a professional gambler, you’ll need to demonstrate a profit motive. The IRS also considers factors such as:
- The amount of time you spend gambling,
- How much you earn gambling,
- How much you earn performing other work, and
- Whether you pursue gambling in a “businesslike manner.”
To help make your case, keep excellent records of expenses and winnings, submit quarterly estimated tax payments to the IRS and work with us, your professional tax advisor, to prepare your return.
