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Pennsylvania Online Casinos Taxes
Pennsylvania Online Casinos are becoming one of the more 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 and gaming as well as 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, Ducati, 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.
Tax calculator assumes a standard deduction of $12,400 (single)/$24,800 (married) and does not include any municipal/local taxes. PA has the lowest rate of all states with a flat tax.
The state tax rate in Pennsylvania is 3.07%, 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 Michigan casinos or racetracks are still subject to Michigan 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 with the Michigan Department of Treasury 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.
How do they get used?
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.
Sports betting winnings are taxable income.
The IRS states:
“Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes, such as cars and trips.”
Even though sports betting isn’t specifically listed, it falls under the umbrella of “gambling winnings.”Wherever your sports betting win occurred – at the OTB, the casino, on a sports betting app – the payor should send Form W-2G.
Sports betting losses might also be used as deductions if you itemize your deductions and keep a detailed record of wins and losses.
Based on your tax bracket, sports bettors in Pennsylvania could owe up to 35% of winnings to the federal government in addition to the 3.07% Pennsylvania taxes net gambling winnings.