How to Calculate Your Gambling Tax Liability in New Jersey

The sweet part of gambling in New Jersey is cashing your winning sports bet slips, lottery tickets, or earning profits at the NJ casinos, poker, and gaming tables. Whether you land a fortune-changing jackpot win, walk away from Atlantic City casinos with some decent returns, or make bank at a gambling website, when you win in New Jersey, your gambling winnings are subject to both state and federal taxes.

All forms of gambling income, whether you gamble at brick-and-mortar casinos, racetracks, or at NJ online poker sites, casinos, sportsbooks, and DFS, must be reported on New Jersey state and federal income tax returns. Are all gambling winnings taxable income in New Jersey? How much is New Jersey gambling income taxed? What happens if you fail to report your gambling winnings in New Jersey?

Read on as we’re going to answer these questions and more about gambling tax responsibility in New Jersey. We’ll also cover what you ought to know about the New Jersey state and federal laws regarding gambling income and taxes.

Rule #1: You Must Report All of Your NJ Gambling Winnings!

There are no buts and ifs here. The cardinal rule of gambling in NJ is that you must report any and all of your winnings to the federal government and the Garden State. This doesn’t matter if the casino reports the winnings on your behalf or not. For instance, if you land the mini, mega, or major jackpot playing your favorite slot machine, you have to report your payout as income.

 

Are Gambling Winnings Taxable in New Jersey?

That’s a big yes. As per the federal taxman (aka IRS), gambling winnings in New Jersey and pretty much any other state is considered taxable income. Collectively termed “gambling income”, this includes but is not limited to payouts from casinos, race tracks, raffles, lotteries, sports betting, poker, and, surprisingly, fantasy sports. 

Gambling income refers to both cash winnings and the reasonable value of prizes won like shopping vouchers, vacation trips, cars, electronics, and so on.

It’s true; most NJ players don’t give much thought to taxes on their way to Atlantic City, racetrack, or sportsbook, but what may appear like nothing more than an opportunity to make a small profit actually has a tax implication. As is frequently the case, New Jersey state and federal government mark gambling winnings for unique taxes of their own category.

When it comes to gambling taxes, how much you won will actually matter, both at the state and federal level. That is why every NJ player must know the thresholds that call for income reporting by the gambler.

The federal tax code makes it obligatory for gambling institutions (both online and land-based betting venues) to issue the player IRS Form W-2G — “Certain Gambling Winnings”. As such, gambling winning meeting the following thresholds have to be reported to the Internal Revenue Services (IRS) by the gambler:

  • $600 or more on sports betting, horse racing, dog racing, or pari-mutuels if your payout is at least 300x your bet amount. So if you bet $20 on an NFL match and win $400, you’ll not pay federal taxes. However, if you wager $1 on a horse race and take home $700 from the bet, you must report the winning as other income to the IRS on your federal tax returns. Note that the IRS doesn’t explicitly mention sports betting, but since it is a form of gambling, then it is subject to federal income tax laws, as well.
  • $1,200 or more from keno proceeds (the amount of payout minus the wager)
  • $1,200 at a bingo game, slots, or other similar casino games. This applies to winnings at both NJ gambling sites and brick-at-mortar casinos.
  • $5,000 or more won at poker tournaments, such WSOP, PokerStars, and other poker sites in New Jersey.

All gambling winnings that meet these thresholds require that you give your SSN to the payer, which in this case is the operator of the casino, sportsbook, racetrack, etc. You must report the full gambling income via IRS Form W-2G. In New Jersey, the payer will hive 24 percent off your tax-qualifying gambling winnings to send to Uncle Sam before you get your payout.

 

What is the Federal Tax Income Withholding Rate for Gambling Winnings in New Jersey?

Any and all gambling winnings made in New Jersey are subjected to withholding for federal tax at the rate of 24 percent. However, the actual amount you owe the taxman on your gambling winnings depends on your total income as reported on your federal tax returns.

The taxable amount on gambling winnings that meet the aforementioned thresholds will be withheld and remitted to the IRS by the payer (which is mostly the casino).

 

How Do I Report My Federal Gambling Income in New Jersey?

As we’ve stated earlier, the fair value of prizes and cash winnings are regarded as “other income” when filing your federal income returns. This will go on your IRS Form 1040. If your gambling winnings are enough to reach the threshold set by the IRS, you’ll generally receive the IRS Form W-2G.

Your reportable gambling winnings made in New Jersey should be listed in Box 1 on the said W-2G form. The form will either be sent electronically (via email, downloadable from a gambling site, etc.) or through USPS. If you play at an Atlantic City casino, racetrack, or any other land-based gambling venue in the Garden State, we’re pretty sure you will receive the IRS Form W-2G if your poker winnings exceed $5,000, horse race bet payout is more than $600, or get more than $1,200 at a slot machine/bingo hall.

If you are supposed to receive a W-2G form, the sportsbook, poker operator, racetrack, casino, or any other payer will ask for at least two forms of IDs. The first, and most important, will be a valid government-issued photo ID. On top of that, you will be required to give your Social Security Number (SSN) to the payer — or your taxpayer identification number (EIN) if you’ve got one.

So, how do you actually report your gambling income to the IRS? If you are not a professional gambler — which applies to nearly all NJ players, you must report your gambling win as “other income” on line 8 of Schedule I for the tax year 2020 and going forward. When you do so, the total of Schedule 1’s Part I will be transferred to line 8 of the IRS Form 1040. It is worth noting that today’s IRS Form 1040 is markedly different from the form used to file tax returns in 2018 and earlier.

If reporting all of your winnings in New Jersey is the #1 rule, then the 2nd rule is that you cannot deduct the wager from your reportable gambling income. For instance, if you land a big win of $2,500 from betting on a horse race and you wagered $200, your taxable gambling income is $2,500, not $2,300 (after deducting your $200 bet). Also, it doesn’t matter if the winnings resulted from real-money play or using casino bonuses.

Another thing to keep in mind is that cash winnings are not the only reportable gambling income to the federal government. If you score a car, trip, or a brand new appliance in a raffle, this also counts as gambling income. You will be required to report the fair market value of the non-cash prize at the time you were declared the winner of the item. This is typically the price you’d pay for the item if you were to purchase it new from a retail shop.

 

What is the Gambling Tax Rate in New Jersey?

All gambling winnings that reach the thresholds cited above are subject to a federal income tax withholding rate of 24 percent (this was previously 25 percent). In addition to that, the state of New Jersey will assess a state tax income at a rate of 3 percent, but the actual rate varies from one betting option to the next and the actual amount won. The tax amount is automatically withheld on your gambling winnings and sent to the IRS by the casino, just as your employer would your income tax on taxable salary or wages.

The good news is that gambling taxes aren’t progressive, unlike your traditional income taxes. Whether you land a $2 million Mega Millions jackpot, scoop $2,000 at the race track, or win $500 at the poker tables, the tax rate you owe on your payout is 24 percent. That’s why you must report your gambling winnings as “Other Income” instead of regular income on IRS Form 1040 or Schedule 1 on Form 1040-SR if your gambling payout isn’t reported on IRS Form W-2G.

When you land a big jackpot win or poker pot, the gambling operator, namely the payer, is required by the law to withhold the taxman’s cut of the win when you claim the payout. At the same time, the payer will issue the winner with an IRF Form W-2G, which you will then use to claim your gambling winnings to the federal government.

As for the New Jersey Income Tax, the gambling winnings made at both online and land-based gaming sites are withheld at an amount equal to 3 percent of the total payout (including the amount wagered). So, if you won $1,200 on a $20 bingo bet, you will pay the state taxman 3% of $1,200, not $1,180 (after subtracting the $20 wager). The state income tax on gambling winnings applies to both New Jersey residents and non-residents.

 

How Much Tax Do You Pay for Lottery Winnings in New Jersey?

Lottery winnings in New Jersey are treated as taxable income and the rate of withholding is determined based on the amount of the lottery payout. All lottery payouts exceeding $10,000 are taxable. Just as with gambling income from contests, awards, prizes, raffles, sweepstakes, sports bets, and casino wagers, the withholding tax is calculated based on the whole amount of lottery payout, not just the figure over $10,000.

The tax withholding rates for lottery winnings by players in the New Jersey Lottery vary depending on the payout as follows:

  • No tax on lottery winnings of $10,000 or less
  • 5 percent on lottery winnings between $10,001 and $0.5 million
  • 8 percent on lottery winnings exceeding $0.5 million

Notably, the withholding rate for lottery payouts exceeding $10,000 is 8 percent if the winner doesn’t provide a verifiable EIN (taxpayer identification number). For example, if you get a payout of $32,000 from a winning Power Ball ticket, the state tax will be withheld by the operator at the rate of 8% if you don’t give a valid EIN. However, if you can provide the payer with your valid EIN, you will pay the state tax at a lower withholding rate of 5%.

Of more importance to winners, the income tax withholding will be calculated based on the total lottery prize won. For instance, if 4 people win a lottery prize of $20,000 and split the payout four-ways, the $5,000 of income received by each winner is subject to a 5 percent withholding. All four lottery winners would pay the state tax at the rate of five percent withholding since the total lottery prize won is more than $10,000.

Likewise, the individual payout is what determines the gambler’s tax obligation, not the total amount of lottery payouts you accumulate over the tax year. For instance, if you’re lucky enough to win the state lottery thrice in the same tax year, and the payouts were $3,000, $9,000, and $7,000 respectively, these lottery winnings wouldn’t be subject to state income tax withholding. Why? That’s because each individual lottery payout doesn’t exceed the taxable threshold: $10,000.

However, if you won the state lottery twice, and the prize money received was $5,000 and $12,000, then you’d pay New Jersey Income Tax on the $12,000 lottery win only. These rules of withholding income tax from lottery winnings apply to both New Jersey residents and non-residents.

Note: the Garden State allows players to donate, split, and assign payouts from lottery winnings to charity or other people. If you’re assigning, splitting, or donating your lottery proceeds, in part or entirety, the amount is taxable to the charity or receiving person as you’d do for federal income tax. You can find more information about New Jersey Income Tax withholding from lottery winnings on the state website.

 

Are Sports Betting Winnings Taxable in New Jersey?

The answer is yes. As one of the leading gambling destinations in the US, New Jersey considers any money you win gambling, including on sports bets, to be taxable income.

If you manage to get some sports betting winnings, you must pay New Jersey State Income Tax you’d on gambling winnings from racetracks, lotteries, casinos, game shows, and even bingo halls. Besides, if you win over $5,000 cumulatively from sports betting during the calendar year, the sportsbook will send you an IRS Form W-2G, so you can report it as “other income” on your federal tax returns.

As a matter of fact, if you bet anonymously at retail sportsbooks, you must keep accurate records of your winnings for tax purposes. The good thing about online sportsbooks and mobile apps is that you can easily track your winnings from your wagering account.

At the federal level, all sports betting winnings exceeding $5,000 are subject to a 24 percent withholding, just like other forms of gambling income. The payer usually withholds the tax amount before they pay out your winnings.

However, players are responsible for reporting, paying, and claiming applicable New Jersey income taxes on sports betting winnings. As of writing, the state withholding rate is 8.5 percent for sports betting winnings made at a physical sportsbook. All sports betting winnings made while wagering on mobile apps and at online sportsbooks are subject to a 13 percent withholding.

It is your responsibility to report any gambling income from sports betting, regardless of whether the sportsbook reports it to the taxman or not. As with all forms of gambling income in New Jersey, you can deduct your sports betting losses. But the claimed gambling losses must not be more than the reported sports betting winnings.

 

Can I Deduct my Gambling Losses?

The answer is also yes. You’re permitted to deduct the expense of lottery tickets, wagers, bets, and other similar wagering losses from your winnings for tax reasons. In the current tax season, you can deduct your gambling losses as “Other Itemized Deductions” on line 16 of Schedule A (IRS Form 1040). More importantly, must indicate in the given space that the itemized deductions are gambling losses.

Note, however, that you cannot claim wagering losses above your gambling winnings. When you lose your shoe on a gambling bender in Atlantic City, there’s no silver lining here when it comes to deducting your gambling losses.

Another thing to note is that you are not allowed to deduct your gambling losses and expenses from your wagering winnings and report only the difference as gambling income. In fact, gambling losses and winnings are reported on two separate forms and two separate lines on the IRS Form 1040.

Deductible gambling losses may not exceed the amount won. As such, you can use your wagering losses to offset your gambling income. However, you cannot deduct any losses that exceed the gambling winnings from your other income sources. In other words, you may have gambled $10,000 and won only $6,000, but you cannot deduct $10,000 (or even the $4,000 difference, for that matter). You’re restricted to a deduction up to $6,000 you won!

As of the end of 2018, you can no longer claim or deduct your other costs, such as the cost of driving to the racetrack, casino, or money you spent on the room.

How do you make a deduction for wagering losses? The key here is to stay on top of your record keeping. To be able to itemize your deductions, you must document the type and date of the betting activity, the address/name of the gambling venue, the names of people who gambled together, and the amount you won or lost. That’s some serious recordkeeping.

 

Tax Obligations of Professional Gamblers in New Jersey

If you gamble full-time and make a living from it, you’re regarded as a professional gambler. You don’t just gamble for mere excitement and fun, list the best of NJ players. The bigger question is: do the tax obligations change if you’re a professional gambler?

If you frequently pursue gambling with the aim of making a living from it, say you’re a professional poker player, then it’s essentially your day job. Instead of reporting your gambling winnings on IRS Form 1040 as “other income”, you can report your wagering income on Schedule C (on the same form) as a self-employed person.

Net income as reported on Schedule C is subject to self-employment tax and federal income tax, as well as New Jersey state income tax. So, what’s the benefit of filing your gambling income as a self-employed individual? One of the biggest advantages is that this allows you to deduct our other costs of “doing business”, such as internet costs (if you gamble online), analytic tools, traveling & meal costs, and so on.

Even so, you can’t deduct more than your gambling winnings. Another downside is that you’ll have to pay Medicare and Social Security (self-employment income tax) on your gambling winnings.

 

What Happens If You Don’t Report Your Gambling Income?

You should always report all of your taxable income — like capital gain, wages, property investments, and of course, gambling winnings. If you received IRS Form W-2G from the payer along with your payout, you must know that the IRS got a copy of the form, as well. In fact, Uncle Sam expects you to report these gambling winnings when filing your 1040 form. If you don’t, the IRS will be furious about it, and what you know comes after that: an audit!

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