Last week’s Powerball drawing made national headlines as the ultimate jackpot eclipsed $1 billion for the first time. While many people did not want to join in on the 1 in 292 million chance of getting all the numbers correct, scores of people bought tickets hoping to be lucky enough to score big.
Gambling is part of the fabric of America’s culture; so much so, that Uncle Sam is eligible to gain a cut of your winnings. Yes, it’s true. For recreational gamblers, there are requirements for reporting and withholding from winning bets. This post will highlight the basics.
Essentially, if you win more than 300 times your original bet, the paying casino, race track or gambling establishment is required to obtain your Social Security number so that it may inform the IRS that you have come into some extra money. And if you want to leave the establishment with your money, it is also likely that the payer will reduce your jackpot by the 25 percent federal tax rate.
For example, if you put $1 into a video poker machine and happen to get a royal flush which pays $1500.00, the casino is obligated to take 25 percent off the top before you leave. Indeed, giving up 25 percent before you leave may seem like a bad deal, but you may recoup the amount you overpaid through other exemptions and credits that you apply through your tax return. In the meantime, getting $1,125.00 on a $1 bet is still pretty cool.
If you have additional questions about reporting gambling winnings, an experienced tax law attorney can help.