For those living in Texas, navigating the tax responsibilities on gambling income can be quite complex. Presently, the state of Texas restricts many gambling activities, including sports betting, within its limits.
Nevertheless, Texans can easily access online casinos or to travel to nearby states like Oklahoma and Louisiana gambling opportunities elsewhere, whether outside the state or using online platforms. Should they earn money through these means, they are obligated to pay taxes on their winnings.
This section provides an outline of the gambling income tax framework in Texas, detailing how individuals should declare their winnings.
What Taxes Are Applied to Gambling in Texas?
Texas stands out as one of nine states that do not impose a state personal income tax. This often leads to the misunderstanding that gambling profits are exempt from taxes in Texas due to the absence of a state income tax. While this is somewhat true, it is important to highlight that federal laws in the U.S. stipulate that gambling winnings must be taxed as income.
There isn't a state-specific tax on gambling imposed by Texas. However, all winnings must be reported and taxed at the federal level.
Moreover, winnings from fantasy sports, including those from Daily Fantasy Sports contests, are also liable for taxation.
Gambling Winners Eligible for W-2G Reporting
When an individual's winnings hit a certain threshold, the gambling establishment is required to issue a Form W-2G to report those earnings.
The onus is on the gambling establishment (the payer) to provide the winning player with the W-2G form. If they fail to do so through oversight, players are still accountable for their tax responsibilities. 1 :
| Type of Winnings | Winnings Threshold |
|---|---|
| Bingo/Slot Machine | $1,200 (not reduced by the wager) |
| Keno | $1,500 (reduced by the wager) |
| The specific threshold for obtaining a W-2G varies depending on the game played; refer to the IRS guidelines provided in the chart below. | $5,000 (reduced by wager or buy-in) |
| Poker Tournaments/Lotteries/Wagering Pools | May be reduced at the payer's discretion by the wager (excluding bingo, slot machines, and poker tournaments) |
$600 or more in winnings and at least 300 times the wagered amount; OR winnings that are subject to federal income tax withholding. 2 What percentage of your gambling winnings will be withheld immediately? According to the IRS, 24% will be taken out right away.
This withholding is applicable regardless of your federal tax bracket. 3 .
It's crucial to recognize that your actual tax obligation may exceed the 24% withheld. In 2022, there are three brackets that exceed 24%: 32%, 35%, and 37%.
Imagine you fall into the 37% federal tax category and win over $5,000 in a jackpot. In such a scenario, 24% withheld will not suffice to cover your total federal tax liability on those winnings. 4 .
The government mandates that a total of 37% be paid in federal taxes on these earnings. If you choose a lump sum for a major jackpot win, this could place you into the 37% tax bracket, irrespective of your other sources of income.
1099-MISC/1099-K
On the other hand, if your income puts you below the 24% threshold in Texas, you might qualify for a refund from the federal government. 5 Additionally, Texas fantasy sports participants may receive a Form 1099-MISC or 1099-K if they win over $600.
Players from states where sports betting and online casinos are legal are likely acquainted with these documentation processes. Texas online casino sites.
Since online gambling and sports betting venues are not licensed in Texas (as of March 2023), players will not receive a 1099-MISC, 1099-K, or W-2G from these sources.
How to Accurately Report Gambling Winnings in Texas
In Texas, there is no specific tax applied to gambling. Consequently, it is unnecessary to declare gambling winnings on your state income tax return.
However, this exemption does not absolve Texas gamblers from fulfilling their federal tax liabilities.
Gamblers are required to report their gambling earnings using IRS Form 1040. Specifically, Schedule 1 of Form 1040 should be utilized to account for gambling winnings. 6 .
Deducting Gambling Losses In Texas
Did you not get a W-2G form documenting your winnings? You are still legally obligated to report those earnings on Form 1040.
As a Texas resident, you can claim your gambling losses on Schedule A of Form 1040, under the section for 'Other Itemized Deductions'. Keeping meticulous records of your earnings, losses, receipts, and any relevant documents for verification is essential. 7 .
You must itemize your deductions; otherwise, your losses won't be considered. Additionally, remember that your gambling losses cannot exceed the total winnings reported on your tax return.
Texas Tax On Gambling Online
If you have any uncertainties or require assistance with your deductions, don't hesitate to reach out to a tax expert in Texas. You may be entitled to a federal refund that you might not be aware of. Texas sports betting Given the current gambling laws in Texas, operators are not allowed to offer online casinos or sports betting within the state. Thus,
residents must go outside their home state to make bets in person or access betting sites located beyond Texas. 8 .
Currently, Texas legislators are deliberating over a proposal for online gambling. Governor Greg Abbott has indicated he is not against sports betting but prefers it to be regulated sensibly rather than being available everywhere. 9 .
It's important to note that Texas law does not explicitly prohibit online gambling activities. While establishing and running an online betting operation is illegal, Texas residents are permitted to participate in online casino games.
What is the situation regarding gambling income tax in Texas concerning these external online betting platforms? Non-Texas based online gambling sites do not have the obligation to provide W-2G or 1099 forms.
Legally, however, it remains the responsibility of Texan online gamblers to report any winnings they earn federally. This applies to online operators not located within Texas.
Which Online Gambling Platforms Outside Texas Should You Consider? online slots real money games.
Wild Casino is among our top recommendations for online gambling. Although it operates outside Texas, this site is ideal for Lone Star State residents, offering a wide range of casino games like roulette and blackjack, along with an exciting selection of 400 games.
Sources
Moreover, we are confident that residents of Texas will appreciate the various bonuses available for first-time users, cryptocurrency enthusiasts, and those looking to reload their accounts. Just keep in mind to adhere to tax regulations once you start to accumulate those winnings. https://www.irs.gov/instructions/iw2g ”
Moreover, we are confident that residents of Texas will appreciate the various bonuses available for first-time users, cryptocurrency enthusiasts, and those looking to reload their accounts. Just keep in mind to adhere to tax regulations once you start to accumulate those winnings. https://www.irs.gov/instructions/iw2g ”
Guidelines for Forms W-2G and 5754 (01/2021) Internal Revenue Service. Retrieved From “ https://www.forbes.com/advisor/taxes/taxes-federal-income-tax-bracket/ ”
2022-2023 Income Tax Brackets & Federal Tax Rates Forbes. Retrieved From “ https://turbotax.intuit.com/tax-tips/fun-facts/tallying-up-the-taxes-of-powerball-winnings/ ”
Calculating Taxes on Lottery Winnings Intuit TurboTax. Retrieved From “ https://turbotax.intuit.com/tax-tips/general/tax-considerations-for-fantasy-sports-fans/ ”
Tax Considerations for Fantasy Sports Participants Intuit TurboTax. Retrieved From “ https://www.irs.gov/taxtopics/tc419 ”
Topic No. 419 Gambling Income and Losses Internal Revenue Service. Retrieved From “ https://www.irs.gov/taxtopics/tc419 ”
Topic 419 Income and Losses Internal Revenue Service. Retrieved From “ https://sbcamericas.com/2023/02/27/gov-abbott-texas-gambling-expansion/https://www.caller.com/story/news/local/texas/state-bureau/2023/02/24/gov-abbott-is-open-to-sports-betting-but-more-leery-of-allowing-casinos/69939750007/ ”
Governor Greg Abbott: Sports betting is 'just entertainment' Caller Times. Retrieved From “ https://sharpcriminalattorney.com/blog/internet-crimes/texas-laws-on-online-gambling/ ”
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