However, if you want to learn more about how your gambling income affects your taxes, read on. Taxable Gambling Income. Gambling income is almost always taxable income. This includes cash and the fair market value of any item you win. By law, gambling winners must report all of their winnings on their federal income tax returns.

1. Gambling Winnings Included Gross Income 2017
2. Gambling Winnings Included Gross Income Rules
3. Gambling Winnings Included Gross Income Tax
4. Gambling Winnings Included Gross Income Form

Discovering you have a winning lottery ticket is thrilling, especially if you hit the big jackpot. However, you won’t be able to keep the entire amount. Under federal law, lottery winnings are taxable, just like the income you earn at your job. You must report all gambling winnings on your federal tax return, and many states also demand a piece of your good luck.

Uncle Sam Always Gets His Cut

If your lottery prize exceeds $5,000, the lottery agency must report your winnings to the Internal Revenue Service. The agency will need your Social Security Number to complete IRS Form W-2G. It will give you a copy and send the original -- and 25 percent of your winnings -- to the IRS. The W-2G will show how much federal withholding the lottery agency deducted from your pay-out. You must report your lottery prize as income on your federal tax return, but you can claim the federal taxes withheld from your pay-out as a tax payment.

The Truth Behind Line 21

Even if your lottery prize is less than $5,000, but more than $600, you're expected to report it on your federal tax return. There's even a line for gambling winnings, Line 21 in fact, on Form 1040. This means if you have gambling winnings, you can't use either of the two simpler individual federal income tax forms, Form 1040A or Form 1040EZ.

No Proof of Loss Equals No Deduction

It's possible to deduct gambling losses, but only if you've got the proper paperwork. The IRS wants to see every receipt, ticket and whatever else reflects your total wins and losses before it'll give thumbs up on a deduction. Even then you can only deduct gambling losses up to the amount of your winnings. For example, if you spent $250 on lottery tickets and won $200, $200 is as much as you can claim as a loss on line 28 of Schedule A.

The Deduction Dilemma

Claiming your gambling losses as itemized deductions will increase your tax refund or reduce the taxes you owe. However, if the total of all your itemized deductions is less than the standard deduction that the IRS allows all taxpayers to claim, don't itemize. Use the standard deduction because it will lower your taxes.

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About the Author

Grygor Scott has written professionally since 1991, with a focus on law, government, food and travel. His work has appeared in 'New York Resident' and on several websites. The author of more than 20 nonfiction books, Scott graduated with honors from the University of North Carolina School of Law.

Winning the Lottery or scoring on a sports wager can change your life in profound ways. Congratulations on your lucky break!

Just remember that your good fortune includes a responsibility to pay taxes and fees on those winnings.

Gambling Winnings:
In 2018, Governor Phil Murphy signed a law that authorized legal sports betting in New Jersey. The law (A4111) allows people, age 21 and over, to place sports bets over the internet or in person at New Jersey's casinos, racetracks, and former racetracks. Sports betting is now among the many forms of gambling winnings that are subject to the New Jersey Gross Income Tax, including legalized gambling (sports betting, casino, racetrack, etc.) and illegal gambling.

Lottery:
New Jersey Lottery winnings from prize amounts exceeding $10,000 became subject to the Gross Income Tax in January 2009.

Withholding Rate from Gambling Winnings
New Jersey Income Tax is withheld at an amount equal to three percent (3%) of the payout for both New Jersey residents and nonresidents (N.J.S.A. 54A:5.1(g)).

Withholding Rate from Lottery Winnings
The rate is determined by the amount of the payout. If a prize is taxable (i.e., over $10,000), the entire amount of the payout is subject to withholding, not just the amount in excess of $10,000. The withholding rates for gambling winnings paid by the New Jersey Lottery are as follows:

• 5% for Lottery payouts between $10,001 and $500,000;
• 8% for Lottery payouts over $500,000; and
• 8% for Lottery payouts over $10,000, if the claimant does not provide a valid Taxpayer Identification Number.

New Jersey Income Tax withholding is based on the total amount of the prize won. For example, if two people win a New Jersey Lottery prize of $14,000 and split the proceeds equally, $7,000 of income is taxable to each person and is subject to the 5% withholding rate. Both taxpayers would be subject to the 5% withholding because the total amount of the prize exceeded $10,000.

Companies that obtain the right to Lottery payments from the winner and receive Lottery payments are also subject to New Jersey withholdings. Each company is required to file for a refund of the tax withheld, if applicable.

Lottery

New Jersey Lottery winnings from prize amounts exceeding $10,000 are taxable. The individual prize amount is the determining factor of taxability, not the total amount of Lottery winnings during the year.

Gambling Winnings Included Gross Income 2017

• For example, if a person won the New Jersey Lottery twice in the same year, and the winning prize amounts were $5,000 and $6,000, these winnings would not be subject to New Jersey Gross Income Tax. However, if that person won the Lottery once and received a prize of $11,000, the winnings would be taxable.
• This standard for taxability applies to both residents and nonresidents.
• The New Jersey Lottery permits donating, splitting, and assigning Lottery proceeds to someone else or to a charity. If you choose to donate, split, or assign your Lottery winnings, in whole or in part, the value is taxable to the recipient in the same way as it is for federal income tax purposes.

Gambling Winnings Included Gross Income Rules

Gambling and Lottery

Making Estimated Payments
If you will not have enough withholdings to cover your New Jersey Income Tax liability, you must make estimated payments to avoid interest and penalties. For more information on estimated payments, see GIT-8, Estimating Income Taxes.

Out-of-State Sales:
Out-of-state lottery winnings are taxable for New Jersey Gross Income Tax purposes regardless of the amount.

Gambling winnings from a New Jersey location are taxable to nonresidents. Gambling includes the activities of sports betting and placing bets at casinos and racetracks.

Gambling Winnings Included Gross Income Tax

Calculating Taxable Income
You may use your gambling losses to offset gambling winnings from the same year as long as they do not exceed your total winnings. If your losses were greater than your winnings, you cannot report the negative figure on your New Jersey tax return. You must claim zero income for net gambling winnings. For more information, see TB-20(R), Gambling Winnings or Losses.

You may be required to substantiate gambling losses used to offset winnings reported on your New Jersey tax return. Evidence of losses can include your losing tickets, a daily log or journal of wins and losses, canceled checks, notes, etc. You are not required to provide a detailed rider of gambling winnings and losses with your New Jersey tax return. However, if you report gambling winnings (net of losses) on your New Jersey return, you must attach a supporting statement indicating your total winnings and losses.

Reporting Taxable Winnings
Include taxable New Jersey Lottery and gambling winnings in the category of “net gambling winnings” on your New Jersey Gross Income Tax return.

Gambling Winnings Included Gross Income Form