With the addition of online sports betting and brick-and-mortar casinos on the way, Virginia bettors have more opportunities to make winning bets and earn gambling profits than ever before. It also means having to pay taxes on those winnings.
Whether a lucrative sports parlay bet or a winning Virginia Lottery ticket, all gambling income is considered taxable and should be reported on your federal and Virginia income tax returns. This page provides answers on how winnings for non-professional gamblers are taxed in Virginia. Tax issues can be complex, so it’s important to keep accurate records and consult a tax professional or accountant if you have questions.
Your tax rate depends on annual income and tax bracket. It’s important to consider gambling winnings when preparing your taxes because those winnings, when added to your annual income, could move you into a higher tax bracket.
Marginal tax rate is the bracket your income falls into. The effective tax rate is the actual percentage you pay after taking the standard deduction and other possible deductions. The state tax rate in Virginia ranges from 2% to 5.75%, which is the rate your gambling winnings are taxed.
All gambling winnings, whether placed online or in person at casinos, are considered taxable. That includes winnings from sports betting, slot machines, pari-mutuel wagering, poker and the Virginia Lottery. Even if the winnings were added to your online account balance and never withdrawn, it’s taxable income.
If your winnings exceed a certain threshold, federal and state taxes may be automatically withheld. In those instances, a W-2G form will be mailed to you and the IRS by the sports betting operator where you enjoyed that gambling win.
Even if no tax was withheld and you did not receive a W-2G form, it is still your responsibility to report all gambling income on your federal and state tax returns, according to the IRS.
Gambling winnings are subject to 24% federal tax, which is automatically withheld on winnings that exceed a specific threshold (see next section for exact amounts). Virginia’s state tax rates range from 2% to 5.75%. But it doesn’t take much — an annual income of more than $17,000 — for the highest percentage to kick in.
Breakdown of Virginia tax rates:
|$3,000 or less||2%|
|$3,001-$5,000||$60 plus 3% of excess over $3,000|
|$5,001-$17,000||$120 plus 5% of excess over $5,000|
|$17,0001 and higher||$720 plus 5.75% of excess over $17,000|
When winnings exceed a certain threshold, bettors receive a W-2G form from the payor (online sports betting operator, casino, pari-mutuel operator, etc.), indicating the amount won and how much tax, if any, was withheld. You should expect to receive a W-2G form if your gambling winnings exceeded any of these thresholds the previous calendar year:
Report your total gambling winnings as “Other Income’’ on Form 1040, including winnings that aren’t reported on Form W-2G. If your winnings were non-cash prizes, such as a vacation trip or automobile, the fair market value of each prize should be reported.
Non-residents with winnings at Virginia online or in-person facilities are required to file a non-resident return if earnings exceed certain thresholds. Consult with your tax specialist.
You will not receive Form W-2G if your gambling winnings did not meet the automatic withholding threshold. If your earnings met the threshold and you did not receive a W-2G, contact the entity that paid your winnings and request one.
Without Form W-2G, how do you determine the amount of your annual winnings and losses? This is where record-keeping becomes so important. The IRS expects you to keep an accurate record of all betting activity and may require you to substantiate wins and losses with records and receipts.
If all of your wagers were placed online, your sportsbook or pari-mutuel operator should have a complete record of all your bets during the previous calendar year that can be accessed.
The answer is yes, but only if you itemize deductions on your federal tax return.
The Tax Cuts and Jobs Act, signed into law on Dec. 22, 2017, significantly increased the amount of the standard deduction. It’s estimated that nearly 90% of households now file using the standard deduction. That means nearly 90% of taxpayers cannot deduct gambling losses.
If you itemize (use Schedule A, Form 1040), gambling losses cannot exceed winnings in any given year. So, if you had $8,000 in winnings and $10,000 in losses last year, your deduction would be limited to $8,000. The remaining $2,000 cannot be carried over.
If the IRS requests that you substantiate gambling wins and losses, the documentation you are expected to provide should include:
Virginia Lottery prizes are subject to federal and state income taxes.
For any prize over $5,000, the Virginia Lottery automatically withholds 24% for federal taxes and 4% for state taxes. Keep in mind those withholdings are estimates and may not satisfy a winner’s tax liability, which depends on the person’s tax bracket.
Taking annuity payments of $5,000 or less instead of a lump sum will not prevent tax liability (though it could keep you in a lower tax bracket). Only the aggregate proceeds are considered.
The lottery issues Form W-2G to the winner of any prize over $600. A copy is also sent to the IRS. The lottery does not withhold taxes or issue Form W-2G on prizes of $600 or less.
When a lottery prize is claimed by a group, each person is required to file Form 5754 (Statement by Person Receiving Gambling Winnings). All members must provide their name, photo ID, Social Security number and amount of winnings. Each winning individual will receive a W-2G form. Federal and state taxes will be deducted, if applicable. If the group wins a jackpot prize that offers both a cash and annuity option, all group members must choose the same option.
Whether you win a Virginia Lottery game or a multi-state lottery such as Powerball or Mega Millions, the same tax liability applies. That means 24% in federal taxes and up to 5.75% in Virginia taxes, whether the prize is claimed in a lump sum or annuity.
Failure to report gambling winnings may attract the attention of the IRS, which could instruct you to report them or add penalties and interest.
Keep in mind that if you received a W-2G form detailing your gambling winnings, the IRS has a copy. If your winnings did not meet the W-2G threshold, the IRS may not be aware, but the agency maintains that taxpayers are legally obligated to report all gambling income, whether won online or in person.
Chet Fussman is a writer for VirginiaIsForBettors.com. Fussman is a former horse racing writer and longtime sports editor of the Florida Times-Union in Jacksonville. He's a poker and blackjack player and frequent sports bettor, who plans to send the U.S. Supreme Court a thank-you card for clearing the way for states to adopt sports wagering. Fussman's philosophy: Don't let the bad beats overshadow your winning ones.