Gambling winnings collected from any form of betting, including online casino wins, are considered taxable income by the IRS. In addition to federal taxes, if you live in New Jersey, your winnings are subject to state taxes as well. There are different tax rates and determining factors on which one applies to your winnings depends on how much you won and how you won it. It may sound complicated, but it isn’t. The bottom line is that regardless of the size of your windfall, you are not going to get 100 percent of it once you file your income tax paperwork.
What we cover
1 – In New Jersey, You Can’t Hide Big Wins
High rollers who frequent the casinos in New Jersey or play the ponies and win big won’t be able to keep their good fortune a secret. That’s because New Jersey online casinos and racetracks are legally obligated to report the large jackpots to the IRS. Winners will also receive a W-2G form in the mail that help you calculate your annual income tax paperwork. The source of the winnings will also send a copy of that same W-2G to the IRS.
2 – In New Jersey, The State Lottery Has Its Own Tax Rate
The lottery in New Jersey is interesting. In addition to federal taxes, there is a state tax on top of that and the size of your lottery win will determine what that rate is. For starters, there’s the standard 3% New Jersey income tax on lottery winnings up to $10,000. If your jackpot is higher than $10,000, there’s more tax. For example, wins between $10,001 and $500,000 have a 5% tax rate applied to them. Wins of more than $500,000 are met with a tax rate of 8%.
But there’s more…if you can’t provide a valid Taxpayer Identification Number, your lottery win, regardless of size, now has an 8% tax applied to it. Oh, and there are a few variables that may or may not work in your favor. If you win $9,000 twice in the same calendar year, you won’t have to pay any state tax as both prizes were less than $10,000 even though they total more than that. On the other hand, if you and another lottery player split a jackpot of $15,000, you will be taxed 5% on that winning even though your share is under the $10,000 threshold. Expect a W-2G Form in the mail for any win over $600 or if your win is more than 300 times the amount of the wager.
3 – Casino and Sports Betting Wins Are Treated Differently Than Lottery Wins
The tax rules are a bit different for casinos and sports betting, compared to the lottery. In New Jersey, casino gambling wins are subject to the standard 24% federal tax plus a 3% state income tax. The thresholds are different depending on what casino games you won playing. For example, you will see a W-2G Form in the mail if your casino win tops $1,200 on slot machines or $5,000 in a poker tournament, less your buy-in. Table winnings do not typically trigger a casino to follow up with W-2G Forms, but the IRS still expects you to keep track of those winnings and report them at income tax time.
Sports betting taxes in New Jersey are the same as they are for casinos. That means your winnings are subject to the federal tax rate of 24% plus the state rate of 3%. The only time you will see a W-2G Form in the mail is if you win 300 times your wager starting at $600 for a $2 bet. Horse racing pari-mutuel wagering also falls under the sports betting umbrella and is subject to the same tax rates as already stated. Again, if your winnings do not generate a W-2G Form, you must track your gambling activity and include it when you file your income tax.
4 – Paying Taxes On Gambling Income Is Straightforward
All gambling winnings are taxable. This means both cash prizes and non-cash prizes. If you win a car or a vacation prize, there is a tax on the fair market value of that prize. Here are a few tips on how to make paying your New Jersey gambling taxes a bit easier.
Tip 1 – Share Your Information
Ensure that the location where you gamble, whether it is online or not, has your contact details before you place your first bet. This helps them meet their tax requirements and send forms to you when your winnings reach a certain level and you require a W-2G Form.
Tip 2 – Track Your Winnings
Regardless of the size of your winnings, you must keep a gambling log. This should contain such information as the name and location of the gambling venue, dates and times you were there, and the bets you made and winnings you collected.
Tip 3 – Wait For Form W-2G To Arrive
You will receive a W-2G Form when your winnings reach a certain threshold. This form allows you to prove that taxes were paid and is vital for filling out your Form 1040 at income tax time. If you do not receive a W-2G, and you collected big winnings, contact the venue for one to be sent.
Tip 4 – Fill Out Form 1040
As you put together your income tax paperwork, use the information on your Form W-2G to complete Form 1040. Gambling winnings go on the line identified as simply “other income.”
Tip 5 – Fill Out New Jersey Forms
To meet the New Jersey gambling tax requirements, you must fill out either a NJ1040 form or if you are a non-resident with gambling winnings collected in the state, you need to fill out a NJ1040-NR form.
Tip 6 – Itemize Your Deductions
There is a perk to tracking all of your gambling activity over the year. If you itemize your wins and losses, you can deduct losses against your winnings. There is a limit in place that stipulates you can deduct losses up to the amount of winnings but not beyond. You will have to have receipts and other documentation to verify your losses.
5 – Not Reporting Gambling Winning In New Jersey Will Earn You Fines
Finally, if you do not report your big winnings at income tax time, the IRS will still have proof that you did score big at the track or casino with the copies of your W-2G form they received from where you made your successful bets. Expect to receive interest-laden penalties until you decide to file the correct paperwork. You may even earn some jail time.
Final Thoughts
Gambling is fun and you stand a chance at winning some serious money or prizes. However, in New Jersey, those wins are taxed both by the federal government and the state. Knowing what you owe, and filing proper paperwork at tax time will keep the IRS happy and prevent them from fining you for not filling out all the details when you file.
