Colorado Sports Betting Taxes
Colorado Online Sports Betting is becoming one of the most lucrative developing gambling markets in the U.S. with legal sports betting, online gambling and even more available to customers. Bettors now have more opportunities to cash winning tickets and earn profits at the state’s sportsbooks, online casinos, and even poker tables.
Once the excitement of collecting your winnings passes, one has to handle their taxes. Yes, gambling income, which includes winnings from slots, table games, sports betting, lottery games, horse racing, jackpots, and the like, is considered taxable income. As such, you are required to report them on your tax return. The car, boat, or sports bike and other non-cash prizes also need to be reported.
What are the tax rates?
Tax rates depend on your annual income and tax bracket. Gambling income is subject to state and federal taxes but not FICA taxes, and the rate will depend on your total taxable income (not just wages) minus deductions (standard or itemized).
Gambling winnings are subject to a 24% withholding for federal tax, though the actual amount you owe on your gambling win will depend on your total income. That tax is automatically withheld on winnings that reach a specific threshold.
The tax calculator assumes a standard deduction of $12,400 (single)/$24,800 (married) and does not include any municipal/local taxes.
Colorado has a flat state income tax of 4.63% %, which is the rate your gambling winnings are taxed. These are broken up differently starting with your Marginal tax rate which is the bracket your income falls into. Then you have your Effective tax rate which is the actual percentage you pay after standard deductions, etc., and operate on a sliding scale depending on filing status and total taxable income. The rules state that when gambling, a person's winnings are to be combined with their annual income; which could move them into a higher tax bracket, hence why it’s important to be aware of gambling income before starting tax preparation. Casinos withhold 25% of winnings for those who provide a Social Security number. If you do not provide your Social Security number, the payer may withhold 28%.
How to pay taxes?
The first step is to understand that all gambling winnings are completely taxable and the income must be reported on your tax return. Gambling income includes but isn't limited to winnings from lotteries, raffles, horse races, and casinos. It also includes cash winnings and the fair market value of prizes, such as cars and trips. Depending on the amount of winnings, bettors may receive a W-2G form , which is sent by the payor (casino, pari-mutuel operator, sportsbook, online casino, online sportsbook, etc). The form reveals the amount of winnings and if any tax was withheld. A copy of that W-2G is sent to the Internal Revenue Service. You must report all gambling winnings as "Other Income" on Form 1040 or Form 1040-SR, including winnings that aren't reported on a W-2G. When you have gambling winnings, you may also be required to pay an estimated tax on that additional income.
If your winnings were non-cash prizes, such as an automobile or vacation trip, the IRS instructs you to report the fair market value of each prize. Non-residents with winnings at Colorado-based Online Sports Books are subject to the state tax.
Who do the taxes get paid to?
The payor of gambling winnings is required to file Forms W2-G with the IRS by the last day of February of the year following the year of prize award. Form 1096, "Annual Summary, and Transmittal of U.S. Information Return," is used to transmit the Forms W2-G to the IRS. Forms are only filed when withholding is required.
Reporting the Federal Tax
Form 945, "Annual Return of Withheld Federal Income Tax," is used to report and pay the monies withheld to the IRS. Form 945 is an annual return and is due January 31 of the year following the year in which the taxes are withheld. Be sure to mark the Form 945 checkbox on Form 8109, Federal Tax Deposit coupon.
The federal employer identification number (FEIN or EIN) of the organization conducting the raffle is required to be listed on the Forms W2-G, 1096, and 945. If you have not secured an EIN, you may apply for one on the Form SS-4, "Application for Employer Identification Number," available from the IRS.
Deductions
You may deduct gambling losses only if you itemize your deductions on (Form 1040) and keep a record of your winnings and losses. The amount of losses you deduct can't be more than the amount of gambling income you reported on your return. Claim your gambling losses up to the amount of winnings, as "Other Itemized Deductions."
So if you had $4,000 in winnings and $10,000 in losses last year, your deduction would be limited to $4,000. The remaining $6,000 cannot be carried over.
The IRS may request that you substantiate gambling wins and losses.
Your documentation may include:
- Form(s) W-2G.
- Form 5754 (group gambling winnings)
- Wagering tickets with dates, location and amounts won/lost. Also provide names of anyone who gambled with you, if applicable.
- Canceled checks or credit records.
- Financial and bank statements.
The Colorado Limited Gaming Act imposes a gaming tax on adjusted gross proceeds for all forms of gaming that the state allows. The Division of Gaming sets the federal gambling tax rate, and about 40 casinos in Cripple Creek, Black Hawk, and Central City use it. The Department of Revenue collects casino tax from Colorado casinos each month. But, those on Southern Ute Indian Reservations and the Ute Mountain Ute don’t pay state gaming tax.
The state uses the TABOR (Taxpayer Bill of Rights) limit to budget for gaming tax revenue. It passed Amendment 50 in 2009 that permits high bet limits, long operation hours, and extra casino games. Last year, Colorado passed Amendment 77 which allowed three gaming cities to set new casino games and bet limits. The cities allowed their city councils to regulate new casino games in their jurisdictions. The TABOR limit doesn’t apply to gaming tax revenue associated with Amendment 77 and Amendment 50.