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Everything You Need To Know About Michigan Online Casino Taxes--Michigan Sports Betting
Michigan 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. Whether hitting a jackpot or taking home a modest return, paying taxes on those winnings goes hand in hand with the experience.
This includes all gambling income; whether won at land-based Detroit casinos, tribal casinos, or on the state’s online casino sites, these winnings are subject to tax and should be reported on your federal and Michigan income tax returns.
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.
The state tax rate in Michigan is 4.25%, 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.
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-m utuel 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.
MICHIGAN LOTTERY TAXES
Here’s what you need to know:
- The Michigan Lottery does not withhold any taxes on prizes of $600 and below.
- Winners of individual prizes of more than $600 will receive a W-2G form. The Michigan Lottery does not withhold any taxes on lottery prizes from $601 to $5,000, but is required to report the winnings to the IRS and Michigan Department of Treasury.
- Winnings of more than $5,000 are subject to automatic withholding of 24% federal tax and 4.25% state tax. The Michigan Lottery says the withholdings are estimates and do not necessarily satisfy a winner’s tax liability. This applies to both state and non-Michigan residents.
A group that wins the Michigan Lottery must submit Form 5754 or a substitute 5754 form, either in print or electronically. All members must provide their Social Security number, photo identification and sign the form.
One person in the group will be designated as the primary winner. A check and W-2G form will be mailed to each member of the group. Federal and state taxes will be deducted from the checks, if applicable.