The poker industry is thriving once again and has grown exponentially in
recent years. According to the World Poker Tour, there are approximately 100
million online poker players across the globe, with 60 million within the U.S.
alone. Poker has a long history in the U.S., and that means authorities have
also been long aware of the financial aspect.
With online poker becoming more popular, several states are benefiting from the
tax dollars collected. In 2021, the state of Michigan grossed a total of
$1.4 billion in total iGaming receipts, of
which online poker was a portion. But it's important to know that legalized poker is only available in certain states, and that complicates things
when it comes to tax. When it comes to tax and poker, both online and offline,
you need to consider the state you're in alongside any profit and losses. In
this post, we'll cover some of the salient points.
1. Report All Your Winnings
If you've won big while playing online poker, sorry to tell you, but you don't
get to keep the full amount. By law, any amount you win, whether it's just $10
or a whopping $10,000, are fully taxable and will need to be reported on your
federal income tax return. Your winnings could come from an online poker room,
tournament, or special event - it doesn't matter because the Internal Revenue
Service (IRS) wants to know so that they can collect their share, too. Winnings may be
reported on Form W-2G.
2. Know Your State Tax Laws
Winnings in a certain state can be taxed, meaning you'll need credits in your
own state. Some people may cross state lines to play because online poker for
real money is not legal in every state. As of this writing (2022), the states
that have licenses, are Michigan, Pennsylvania, Nevada, New Jersey, and
Delaware. Although West Virginia and Connecticut have passed laws allowing
online poker, there are no live internet sites as of yet. Therefore, be sure to
check your state laws before playing online poker.
3. Withholding Taxes
If the amount you win playing online poker is greater than $5,000 and the
payout is at least 300 times the amount of your bet, you must pay the IRS 24%
in taxes. But this is an estimated amount because the real amount you owe
depends on how much your annual income is. If you want to see how much was
withheld, look at Box 4 of Form W-2G.
When you file your 1040 the following year, include the amount withheld as
federal income tax. You'll see it subtracted from the tax you owe (or will be
reimbursed). Remember to attach Form W-2G to your return.
4. Losses May Be Deductible
Everyone has had some unlucky hands and lost. It may not be as bad as it seems
because you may be able to deduct your losses on your tax return. These can
even include items like the cost of the wager, travel expenses, gasoline, and
airline tickets, among others. In order to take advantage of deducting your
losses, you'll have to itemize everything that you want to be deducted by using
itemized deductions on Schedule A. Unfortunately, if you use the standard
deduction, you won't be able to take advantage of deducting losses.
There's another thing you should be aware of. You're not allowed to deduct
losses that are more than the winnings you report on your annual return. For
instance, if you won $1,000 in one poker tournament, but lost $3,000 in a few
other tournaments, you're only allowed to deduct the first $1,000 of your losses.
If Lady Luck was not on your side the entire year and you had zero winnings,
you're not allowed to deduct any of your losses.
Winning at poker is great, but don't forget about Uncle Sam. There are some tax
rules to follow, and knowing the right ones can help you obtain
more money, while still paying
your fair share.
