How Are Winnings Taxed? W-2G, the 90% Loss Cap, and States

Money you win from gambling or receive as a prize is taxed as ordinary income on your federal return, at the same rates that apply to your wages.¹ How gambling winnings are taxed changed meaningfully for 2026: the One Big Beautiful Bill Act now caps the losses you can deduct at 90% of the amount you lost, so even a gambler who breaks even on the year can end up owing tax. Payers withhold 24% federal tax at the point of payout on many larger wins, but withholding is only an advance on what you owe. Whether you receive a tax form or not, every dollar is reportable.

What Counts as a Taxable Win

The IRS defines gambling income broadly. Lottery jackpots, casino table games, sports bets, horse races, raffles, bingo, fantasy sports payouts, and online poker tournaments all qualify. Sweepstakes, game show prizes, and promotional giveaways you never paid to enter are taxed the same way.² If you receive something of value and the statute doesn’t specifically exclude it, expect it on your return.

Non-cash prizes are taxed on their fair market value. Win a car that would sell for $45,000, and you owe tax on $45,000 of income even though no money hit your account.¹ Promoters sometimes report a prize at its manufacturer’s suggested retail price, but you’re taxed on what the item actually costs at retail. If the reported value looks inflated, you can argue for a lower figure, but you’ll need comparable sale prices to back it up.

Narrow exceptions exist. Prizes for charitable, scientific, or civic achievement are excluded if the winner didn’t enter a contest, isn’t required to perform future services, and directs the money to a charity or government entity.² Olympic and Paralympic medalists with adjusted gross income under $1,000,000 can exclude the value of their medals and prize money. Outside those situations, prizes are fully taxable.

Federal Withholding at the Payout

Depending on the amount and type of game, the payer may take federal income tax out of your winnings before you touch the money. The withholding rate for 2026 is 24%.³

Mandatory withholding kicks in when winnings exceed $5,000 from a lottery, sweepstakes, wagering pool, or parimutuel wager where the payout is at least 300 times the amount wagered.⁴ Slot machines, keno, and bingo are specifically exempt from mandatory withholding, though you can ask the casino to withhold voluntarily. State lotteries withhold on any prize above $5,000 regardless of the wager-to-payout ratio.

If you don’t give the payer a valid taxpayer identification number, backup withholding applies at 24% even on smaller amounts.³ For non-cash prizes, the payer can either withhold from other funds you have on hand or apply a grossed-up rate of 31.58% to account for the fact that there’s no cash to deduct from.

Withholding is not your final tax. It’s an advance. If your total liability turns out higher than what was withheld, you owe the difference. If it’s lower, you get a refund.

When You’ll Get a Form W-2G

Form W-2G is the document casinos, racetracks, lottery commissions, and other payers use to report your winnings to you and the IRS. It shows the amount won, the type of wager, and any federal or state tax withheld.⁵

For 2026, the minimum reporting threshold has been raised to $2,000, adjusted annually for inflation going forward.³ The old rules used different thresholds by game type: $600 for most wagers, $1,200 for slots and bingo, and $1,500 for keno. The new $2,000 floor replaces all of them. For wagering transactions outside lotteries and sweepstakes, the payer generally issues a W-2G only when the payout also exceeds 300 times the amount wagered.

Not receiving a W-2G does not make the income tax-free. You’re required to report all gambling winnings, including small pots at a poker table, an office pool, or an online sportsbook payout below the reporting threshold.¹ The W-2G triggers IRS matching, but the obligation to report exists either way.

Deducting Your Losses

You can deduct gambling losses against winnings, but several constraints make this less generous than it sounds.

The New 90% Cap

Under the One Big Beautiful Bill Act, signed into law on July 4, 2025, you can deduct only 90% of your gambling losses beginning with tax year 2026. Even if your losses equal your winnings, 10% of those losses become non-deductible. A gambler who wins $50,000 and loses $50,000 can deduct only $45,000, leaving $5,000 of taxable “phantom income.”

The prior ceiling still applies on top of the new cap: your deductible losses can never exceed your reported winnings.⁶ If you win $20,000 and lose $30,000, the most you can deduct is $18,000, or 90% of your winnings. The other $12,000 in losses disappears.

You Have to Itemize

Gambling losses go on Schedule A as an itemized deduction.⁶ That means giving up the standard deduction. For 2026, the standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.⁷ If your gambling losses plus mortgage interest, state taxes, and charitable donations don’t exceed the standard deduction, itemizing costs you money instead of saving it. Many casual gamblers are better off taking the standard deduction and paying tax on their gross winnings.

No Netting

You cannot subtract losses from winnings and report only the net. You must report the full winnings as income and list losses separately on Schedule A.⁶ That distinction matters because of what it does to your AGI.

How Winnings Push Up Your AGI

Gambling winnings flow into your adjusted gross income at their full amount, and itemized loss deductions don’t reduce AGI. That matters far beyond the gambling line. Your AGI controls eligibility for ACA premium tax credits, Medicaid in expansion states, the child tax credit, education credits, and IRA contribution deductibility. A single night at the casino producing $40,000 in gross winnings can push your AGI above a threshold that costs you thousands in phased-out credits or lost benefits, even if you lost most of the money back and deducted it on Schedule A.

This is where the no-netting rule really bites. A gambler who wins $40,000 in one session and loses $40,000 in another still has a $40,000 AGI increase before applying the itemized deduction. That inflated AGI ripples through the whole return. Retirees can see more of their Social Security benefits become taxable. Parents can lose income-based credits. Before assuming the loss deduction makes you whole, think about the downstream effects.

When You Need to Make Estimated Payments

When a big win doesn’t have enough tax withheld at the source, or none at all, you may need to make estimated tax payments to avoid an underpayment penalty. This comes up constantly with slot jackpots (exempt from mandatory withholding), poker tournament wins, and sports bets.

Estimated taxes are paid quarterly using Form 1040-ES.⁸ You avoid the penalty if you owe less than $1,000 at filing, or if you’ve paid at least 90% of your current-year liability or 100% of last year’s tax, whichever is smaller.⁹ If your prior-year AGI exceeded $150,000, that 100% figure jumps to 110%. The IRS charges 7% annual interest, compounded daily, on underpayments as of early 2026, so sitting on a large windfall until April can cost real money.¹⁰

If you win a large amount mid-year and the payer didn’t withhold, the safe move is to send a payment with Form 1040-ES by the next quarterly deadline rather than waiting until you file.

If You Gamble for a Living

The IRS treats professional gamblers differently. If you gamble full-time, with regularity, and for the purpose of earning a living rather than as a hobby, your activity can be classified as a trade or business. The agency applies a multi-factor test looking at the time you devote, your expertise, your track record, and whether the activity has a genuine profit motive.

Professional gamblers report income and expenses on Schedule C rather than the itemize-or-don’t framework that applies to recreational players. That opens the door to deducting business expenses like travel, lodging, tournament entry fees, and analytical subscriptions. A restriction from the 2018–2025 period that capped combined business expenses and losses at gambling winnings expired at the end of 2025, so professionals filing for 2026 can once again deduct business expenses that exceed net gambling income.

Professional status cuts both ways. Your net gambling income becomes subject to self-employment tax, and the IRS scrutinizes these returns more closely. Claiming professional status without the track record to support it is one of the faster ways to trigger an audit.

Nonresident Aliens

If you’re not a U.S. citizen or resident, the default federal withholding rate on your gambling winnings is 30%, not 24%.¹¹ Tax treaties with certain countries, including the United Kingdom, Germany, France, and Japan, can reduce or eliminate that rate.

Winnings from blackjack, baccarat, craps, roulette, and the big-6 wheel are generally not subject to nonresident alien withholding unless the casino issued a Form 1042-S showing tax was withheld.¹¹ Lottery and raffle winnings don’t get this carve-out. Nonresident aliens who don’t qualify for a treaty exemption report gambling income on Schedule NEC of Form 1040-NR and cannot deduct gambling losses against those winnings.

State Taxes

State rules on gambling income vary widely. A handful of states have no personal income tax at all. Among those that do tax income, state-level withholding on gambling and lottery winnings ranges from zero to roughly 11%, and many states withhold at the point of payout the way the federal government does. Winning a prize in a state where you don’t live can create a filing obligation there, sometimes requiring returns in two or more states for a single jackpot.

Not every state that has an income tax allows a deduction for gambling losses, even if you itemize federally. Some states start from federal AGI without allowing itemized deductions, which means your full winnings get taxed at the state level with no offset. Check your state’s treatment before assuming the federal loss deduction carries over.

Records the IRS Expects You to Keep

The IRS expects you to maintain a diary or similar log of your gambling activity. This isn’t optional advice; it’s the documentation standard the agency publishes for anyone who claims gambling losses.¹ Your log should include the date, the type of game, the name and location of the establishment, the amounts won and lost, and the names of anyone with you. Back it up with tickets, receipts, statements, and W-2G forms.

Casinos track your play through loyalty cards, and those records can help, but they aren’t a substitute for your own log. Casino systems sometimes miss sessions, combine data across days, or omit buy-in amounts. If the IRS questions your losses and all you have is a casino player’s report, expect a fight. The taxpayers who survive audits are the ones with a contemporaneous diary that matches their W-2G forms and bank statements.

1
Internal Revenue Service. Topic No. 419, Gambling Income and Losses
2
Office of the Law Revision Counsel. 26 USC 74 – Prizes and Awards
3
Internal Revenue Service. Instructions for Forms W-2G and 5754
4
Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source
5
Internal Revenue Service. About Form W-2G, Certain Gambling Winnings
6
Internal Revenue Service. Publication 529, Miscellaneous Deductions
7
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
8
Internal Revenue Service. About Form 1040-ES, Estimated Tax for Individuals
9
Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
10
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
11
Internal Revenue Service. Instructions for Form 1040-NR