Net winnings in gambling are what you actually profit from a bet: the payout minus what you wagered. Put $20 on a football game and collect $50, and your net winnings are $30. Buy a $5 lottery ticket that pays $10,000, and your net winnings are $9,995. The IRS calls this figure “proceeds” and uses it to decide when a payer must report your winnings, when tax gets withheld, and how much of your losses you can write off.1Internal Revenue Service. Instructions for Forms W-2G and 5754
How to Calculate Net Winnings
The formula is payout minus wager. That works for a single sports bet, a lottery ticket, a keno card, or a horse race ticket. A $100 sports bet that returns $350 gives you $250 in net winnings.
Poker tournaments use the same logic, with the buy-in as your wager. Pay a $200 entry fee, finish with $1,500 in prize money, and your net winnings are $1,300. Re-buys and add-ons count toward your total wager and reduce the net figure.
Non-cash prizes are valued at fair market value. Win a $25,000 car on a $10 raffle ticket and the net amount is $24,990.1Internal Revenue Service. Instructions for Forms W-2G and 5754
Slot Machines Use a Session Method
Tracking every spin is impossible, so the IRS lets slot players calculate net winnings across an entire session. The approach comes from Tax Court decisions and IRS Notice 2015-21, which proposed a safe harbor for slot machine play.2Internal Revenue Service. Notice 2015-21 – Safe Harbor Method for Determining Gross Income From Slot Machine Play
A session starts with your first wager on a type of slot game and ends with your last wager on that same game type before the calendar day is out. Your net winnings for the session are what you leave with minus what you fed in. Start an afternoon with $200 and walk away with $350, and the session produced $150 in net winnings, no matter how many individual spins went one way or the other. Play past midnight and you have two sessions, because the day resets.
Reporting Net Winnings on Your Tax Return
Every dollar of gambling income is taxable, whether or not you get a Form W-2G. Lotteries, raffles, sports betting, horse races, casinos, office pools: all of it goes on your return.3Internal Revenue Service. Topic No. 419, Gambling Income and Losses
This trips people up. A W-2G is a reporting form the payer files at certain thresholds; its absence does not make your winnings tax-free. Report gambling winnings, including the fair market value of non-cash prizes, on Schedule 1 of Form 1040 as other income.3Internal Revenue Service. Topic No. 419, Gambling Income and Losses
Payers file a W-2G when winnings hit set levels: $5,000 in proceeds from sweepstakes, lotteries, and wagering pools; $5,000 in proceeds from sports wagering or parimutuel horse racing where the payout is at least 300 times the wager; and, starting in 2026, $2,000 or more from slot machines, bingo, or keno after an inflation adjustment.4Internal Revenue Service. Instructions for Forms W-2G and 5754 (Rev. January 2026) Draft1Internal Revenue Service. Instructions for Forms W-2G and 5754 The IRS gets a copy of every W-2G and runs automated matching against your return.
When the Payer Withholds Tax
Once your net winnings from certain games exceed $5,000, the payer must withhold 24% of the proceeds before paying you out. This applies to sweepstakes, lotteries, wagering pools, sports bets, and parimutuel wagers where the payout is at least 300 times the wager.5Office of the Law Revision Counsel. 26 U.S.C. 3402 – Income Tax Collected at Source
Slots, bingo, and keno are carved out of that regular withholding, even above $5,000.5Office of the Law Revision Counsel. 26 U.S.C. 3402 – Income Tax Collected at Source But backup withholding at 24% applies to any game if you fail to give the payer a valid taxpayer identification number.1Internal Revenue Service. Instructions for Forms W-2G and 5754
Withholding is not your final tax. It is a prepayment against what you will owe when you file. Owe more than 24% on that income and you top it up on your return; owe less and you get the difference back.
Deducting Losses Against Your Winnings
You can deduct gambling losses, but only up to the amount of gambling income you report for the year. Win $8,000, lose $12,000, and your deduction is capped at $8,000. A net gambling loss does not offset your wages, interest, or other income.3Internal Revenue Service. Topic No. 419, Gambling Income and Losses
The bigger catch: the deduction only helps if you itemize on Schedule A. For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your itemized deductions, gambling losses included, do not clear that number, itemizing costs you more than it saves.
The result is an asymmetry: your winnings are always taxable, but your losses only help your tax bill if you itemize and have enough total deductions to make itemizing worth it.
Records That Back Up Your Numbers
A contemporaneous gambling diary is the main defense if the IRS questions what you reported. The IRS recommends logging, at minimum:
- The date and type of each gambling activity
- The name and location of the establishment
- The names of anyone with you at the time
- The amount won or lost for each session7IRS. Diary or Similar Record
Back the diary with supporting documents the IRS will accept: W-2G forms, wagering tickets, canceled checks, bank withdrawal records, credit card statements, and casino win/loss statements.8Internal Revenue Service. Publication 529, Miscellaneous Deductions For table games, casino credit records showing whether credit was issued at the pit or the cage can add weight. Each diary entry should tie a specific wager to a specific return so the numbers can be traced end to end.
Penalties for Getting It Wrong
Automated IRS matching compares W-2G forms against what you filed. A casino reports $15,000, you reported $5,000, and a notice or audit is likely.
If the IRS finds you underreported, the accuracy-related penalty is 20% of the underpaid tax, plus the tax itself and interest.9Office of the Law Revision Counsel. 26 U.S.C. 6662 – Imposition of Accuracy-Related Penalty on Underpayments Gross misstatements or undisclosed transactions raise the penalty to 40%. Reporting every winning session, including those without a W-2G, is the practical way around this.
Special Situations
If gambling is your trade or business, you report on Schedule C rather than Schedule 1, and losses can be claimed without itemizing. Starting in 2026, gambling-related expenses (travel, lodging, tournament fees, software) count as gambling losses and fall under the same cap: total losses and expenses combined cannot exceed your gambling winnings for the year.
Non-resident aliens generally face a flat 30% rate on U.S.-source gambling winnings, or a lower treaty rate, and report on Schedule NEC of Form 1040-NR. Canadian residents can deduct U.S. losses against U.S. winnings, but not net losses; residents of other countries generally cannot offset losses against winnings unless both occurred in the same session.10Internal Revenue Service. 2025 Instructions for Form 1040-NR
State rules add another layer. Most states with an income tax also tax gambling winnings, at rates ranging from zero in states without an income tax to over 12% in the highest jurisdictions. Some mirror the federal loss deduction, others disallow it or add restrictions, and some tax non-resident winnings won inside their borders. Check the tax agency for the state where you live and the state where you won.