Does Michigan Tax Gambling Winnings

  
  1. 3) There is no gambling loss deduction for Michigan income taxes. You will pay state income taxes on all gambling winnings reported. Gambling Income Tax Record Keeping A better method for keeping track of your gambling activities is to create a daily log book.
  2. All casino winnings are subject to federal taxes. However, the IRS only requires the casinos to report wins over $1,200 on slots and ​ video poker machines or other games such as keno, lottery or horse racing. When you have a win equal to or greater than $1200, you are issued a W-2G form.

No matter your residency, all winnings from gambling at casinos or racetracks in Michigan have to be declared on a Michigan return using Form MI-1040. The state-to-state reciprocal agreements discussed above regarding wages and salaries do not apply to gambling winnings.

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Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.

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Casino Winnings Are Not Tax-Free

Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.

By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.

How Much You Win Matters

While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:

  • $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
  • $1,500 (reduced by the wager) in keno winnings.
  • $1,200 (not reduced by the wager) from slot machines or bingo
  • $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.

Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.

Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.

What is the Federal Gambling Tax Rate?

Standard federal tax withholding applies to winnings of $5,000 or more from:

  • Wagering pools (this does not include poker tournaments).
  • Lotteries.
  • Sweepstakes.
  • Other gambling transactions where the winnings are at least 300 times the amount wagered.

If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.

Does Michigan Tax Gambling Winnings Losses

The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.

It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.

Does Michigan Tax Gambling Winnings

Can You Deduct Gambling Losses?

If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.

The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.

What About State Withholding Tax on Gambling Winnings?

There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.

Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.

State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.

How to Report Taxes on Casino Winnings

You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.

Does Michigan Tax Casino Winnings

You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.

Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.

Does Michigan Tax Gambling Winnings Tax

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November 13, 2017 by April Thiel, CPA

You Win Some, You Lose Some at the Casino!

I would really love it if a client of mine called me up one day and said, “I won big at the casino! How do I report that?” While we all may dream of hitting it big, the reality is, many walk away with empty pockets.

“Can I deduct those losses?” is a question posed by the less than lucky when it comes time to file their tax returns. While people generally expect to pay state and federal income tax on winnings, they typically growl when they learn that the tax system is not a two-way street when it comes to reporting losses.

It comes down to whether you are a “professional gambler,” or what the Internal Revenue Service (IRS) calls a “casual gambler.” Unless the way you play lands you on the World Series of Poker on ESPN or playing slots is your 9-5 job, the general answer is “casual gambler.”

Unfortunately, “casual gambler” is not a good answer for tax purposes. A professional gambler is just as you might imagine; gambling is their business, their profession. They can deduct expenses and losses like any other business. However, as a casual gambler, unless you meet strict IRS guidelines, you may lose out on benefiting from gambling losses at tax time.

There are standards that must be met and the designation of professional or casual gambler is based on “facts and circumstances.” As a casual gambler, you could use some of the losses on your federal return if you itemize, but not nearly to the extent most would like. They are limited to the amount of gains you had, and only on your Schedule A as an itemized deduction. Additionally, in past years you did not benefit from any of those losses when it came to your Michigan return. In Michigan, your beginning tax calculation starts with your federal adjusted gross income—which did not include gambling losses for casual gamblers, until recently.

Michigan now allows “session method” previously only for pros

In 2016, Michigan issued a Revenue Administration Bulletin that specifically lays out what the state will allow when it comes to reporting gambling income and losses. Beginning in January 2016, Michigan now recognizes the “session method” of reporting your gambling income and losses. This is the only way to receive any type of benefit from wagering losses in Michigan.

As a casual gambler, this does not mean you can deduct a loss on your wagering, but it does mean that you can now at least use your daily losses to offset your winnings on the same type of game on the same day (or session), up until a break-even point (not less than zero.) For many who stick to the same types of games (i.e., tables versus slots) this is promising news. Additionally, most casinos utilize player cards that handle the record keeping that the IRS and state require upon an audit. You would need to be consistent for federal and state purposes, but by lowering your federal adjusted gross income using the session method, you potentially save yourself a great deal of state tax that was not an option in the past.

As an example, I may have a W-2G from the casino for $2,000; but I really spent $3,000 for a $1,000 loss playing my favorite slot machine all on one day. Without using the session method, I potentially must pay federal tax on $2,000, unless I itemize. I may be able to use $2,000 as an itemized deduction if I am eligible to file Schedule A. Either way, I’m still paying tax on winnings even though I walked away with less money than I started with. I would also have to pay Michigan tax on $2,000. Using the session method, I cannot deduct a loss of $1,000, but I also will not be paying either federal or state tax on the W-2G amount.

How can this help you?

If you are organized and can provide the required support under audit, you may be able to utilize the session method and save tax dollars, especially now in Michigan. As with any tax topic, it can be complex and you should always consult your tax advisor.

Contact us today, we can help you keep more of your winnings or potentially ease the pain of a loss.