Tax On Gambling Winnings In Michigan

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Gambling/lottery winnings are subject to Michigan individual income tax to the extent that they are included in your adjusted gross income. The Michigan Income Tax Act has no provision to subtract your losses on the Michigan individual income tax return. You cannot net the winnings and losses. Publication 3079 PDF, Tax-Exempt Organizations And Gaming (PDF) Online Ordering for Information Returns and Employer Returns. Treasury Decision 9807, Information Returns; Winnings from Bingo, Keno, and Slot Machines. Treasury Decision 9824, Withholding on Payments of Certain Gambling Winnings. Other Current Products. I'm having an issue with my 2016 taxes. Originally turbo tax calculated that I owed Ohio approximately $8,000 because of my gambling winnings in Indiana. At the time I was unable to pay for a second state and open a Indiana return. After updating my software yesterday and going to amend my taxes now TurboTax says they don't think I need to file a Indiana return and that I owe Ohio 6000.

Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.

Casino Winnings Are Not Tax-Free

Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.

By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.

How Much You Win Matters

While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:

• $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
  
• $1,500 (reduced by the wager) in keno winnings.
  
• $1,200 (not reduced by the wager) from slot machines or bingo
  
• $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.
  

Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.

Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.

What is the Federal Gambling Tax Rate?

Standard federal tax withholding applies to winnings of $5,000 or more from:

• Wagering pools (this does not include poker tournaments).
  
• Lotteries.
  
• Sweepstakes.
  
• Other gambling transactions where the winnings are at least 300 times the amount wagered.
  

If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.

The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.

It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.

Can You Deduct Gambling Losses?

If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.

The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.

What About State Withholding Tax on Gambling Winnings?

There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.

Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.

State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.

How to Report Taxes on Casino Winnings

You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.

Tax On Gambling Winnings In Michigan Lottery

You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.

Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.

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Gambling is fun. Taxes are not. Unfortunately, the two have to go together for anything to happen.

For states like Michigan, the only real reason to legalize any form of gambling is the opportunity for tax revenue. Whether it be to pay for schools, roads, or some other project, most governments are always on the lookout for a new revenue stream.

Paying any tax stings, to be sure, but it’s important that you know how and when the taxman might come when you visit one of the Great Lake State’s casinos. So, here is a guide for how taxes apply to Michigan gambling.

Are gambling winnings taxable in Michigan?

Throwing money around in a casino rarely seems like an official transaction. Whether you win or lose, the final disposition of your chips can often feel like a stitch in time.

Unfortunately, it’s not. All winnings that you collect in a casino are taxable as income, both on the state and federal levels. So, you should be reporting those wins on your annual tax returns. Though many people scoff at the notion of reporting cash income to the government, it counts the same as income from a check or direct deposit in the eyes of tax officials.

Failure to report your gambling income could, in theory, land you in hot water with the Internal Revenue Service (IRS) or the state of Michigan Department of Treasury. In practice, those entities are unlikely to audit someone over a few hundred or thousand dollars, but that doesn’t mean they can’t or won’t.

Also, please take note that non-cash winnings, like cars, boats or other objects you may win at a casino are subject to taxes, too. The value that has transferred to you because of the win has increased your financial position, and the government wants its share of the loot. As a side note, game show prize winners have to do the same thing.

What is the tax rate on my gambling winnings?

Now that you’ve steeled yourself to the reality of giving away a portion of your winnings to the government, you may be wondering who and what you’ll be forced to pay. As indicated earlier, you will be compelled to pay percentages to both the IRS and the state of Michigan for your wins.

The IRS, for its part, will demand that you fork over 25% of your winnings to the feds for your troubles. This rate applies to wins of any size, even if you win just a dollar.

In addition, Michigan law requires that you pay an additional 4.25% to the folks in Lansing for having played in their casino. Even though the casinos themselves are the main wellspring of tax income for the state lawmakers, gamblers do not escape unscathed.

Reporting Gambling Winnings In Michigan

For smaller wins, you’ll essentially be on your honor to report your gambling winnings. As stated earlier, it’s not legal just to stick the money into your pocket, but there’s no mechanism or watchful eye to force your compliance.

That lack of oversight extends to wins up to $5,000. However, at that point, the casino itself is bound to collect 25% on the government’s behalf before it releases your winnings to you. Give the cage your name and Social Security number, and your tax bill will be settled before you leave the property. Of that 25%, the casino gives all of it to the government.

Obviously, losing 25% off the top isn’t fun, but please don’t get any ideas about simply withholding your name and SSN. As it turns out, anyone who refuses to provide their information (for any reason) will be subject to an additional 3%penalty.

Tax On Gambling Winnings In Michigan Casinos

If I never win $5,000 will I ever have to pay taxes upfront?

If you’re not a high-roller, the idea of ever reaching the federal threshold for casinos to report wins might seem far-fetched. After all, if you usually bet in $5 or $10 increments, it’s quite unlikely that you’ll land a win that exceeds $100, let alone $5,000.

There are, however, some other scenarios in which the casino might have to report your win to the IRS before handing you the proceeds from your hard-fought victory.

A casino must report a win to the IRS with Form W-2G if any of the following events occurs:

• The total winnings, or combined bet and profit, on a slot machine exceed $1,200.
• A player’s keno profit on a game is more than $1,500.
• A poker player wins more than $5,000 in a tournament.
• A game’s profit is more than $600 and is 30 times or greater than the bet amount.

Now, filing this form does not mean the casino has to collect from your winnings automatically. However, since the government will soon be aware of your win, it would be foolish to omit it from your return. So, make sure to keep your copy of the form for your records.

The bottom line is that if you have a memorable win in a casino, it’s quite likely the government wants to remember it, too.

How do I report winnings on my gambling tax form?

As is the case for essentially anything to do with the IRS, there are forms to fill out. The first thing to do is report the income on the IRS Schedule 1, which is the form for additional income and adjustments to income.

On that form, look for Line 8 in Part I, which is titled “other income.” Here is where you will list your winnings and their source. “Gambling” or “casino” are fine for explaining where the money came from in most cases, although you can be more specific regarding the casino and date if you’d like.

Once you’ve entered the information onto your Schedule 1, you’ll need to put the same total onto line 7a of your regular tax return. You will then be able to add the winnings to your overall taxable income.

Your Schedule 1 is also the place to list various types of deductions, like certain business expenses or student loan interest payments. So, make sure you don’t miss out on all the different ways to reduce your taxable base.

How do I claim gambling losses on my taxes?

Of course, gambling comes with the inherent chance of losing. However, you could understandably think that it seems unfair that the IRS only cares about your winnings. You may wonder if there’s a way to claim gambling losses on your taxes.

As it turns out, you can.

The IRS provides Schedule A as a form to claim various deductions. Although there’s no line expressly for gambling losses, you can list your setbacks in Box 16 – Other Itemized Deductions to claim them.

Now, there are two rules that go along with claiming casino losses on your tax form. The first, and most important, is that you cannot claim losses in excess of your claimed winnings.

So, if you list $1,000 in gambling winnings on your Schedule 1, the maximum that you could claim as losses on your Schedule A would be $1,000. If you had a bad year at the casino (as many of us do), the IRS does simply allow you to write off the loss as a deduction against your taxable base, unfortunately.

The other rule is you must be able to prove your losses in some kind of meaningful way in order to claim them. It is vital you keep records, receipts and other documentation to show the losses, or the IRS may not accept the deduction as valid.

After all, that might be a handy way to offset your winnings from the year and avoid taxation, so the IRS has to be sure you took the beating you claim to have suffered. The chance the agency will take a harder look at you will increase as the dollar amount goes up, so if you’re a bit of a high-roller, it’s a good idea to keep a paper trail for yourself.

If you’re thinking that recordkeeping might be a pain, you can possibly make things easier by using your loyalty or membership card at your casino of choice when you play. Since they award you based on your play, they keep records. It shouldn’t be too difficult to acquire a copy of your history.

For your Michigan tax return, it’s not possible to claim any kind of losses as a deductible expense. However, the state does allow you not to report the first $300 you win on bingo, poker or other casino games from your total household expenses.

Do I have to pay taxes if I’m not a state resident?

It’s pretty clear you have to pay taxes to Michigan if you’re a Michigan resident. However, you may be wondering if you’re still on the hook for the taxes if you’re just visiting from out of state.

Unfortunately, you are still bound to pay taxes to Michigan for your gambling win as a nonresident. Worse yet, you will also have to report your winnings on your return for your own state, assuming your state requires an income tax.

However, there are a couple of bits of good news. First, the states nearest Michigan (Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin) have reciprocal agreements with the Great Lakes State regarding earnings you incur in Michigan. If you live in one of those six states, you are not required to file a nonresident return in Michigan.

The other ray of sunshine is there is, in fact, a tax credit that you will be able to claim on your home state’s return that will offset the taxes you paid in Michigan on your winnings. So, even though you had to surrender taxes to a state in which you don’t live, you don’t have to pay double tax on the windfall. Although states are happy to collect tax revenue, they correctly realize that having to pay tax twice on the same win might lead citizens to decide it’s not worth the effort to play.

Do I pay taxes on group gambling winnings?

In many things, there is strength in numbers, and gambling is no exception. It’s not uncommon for a group of friends to pool their money so that they can roll a bit higher than they would individually. Whether they’re throwing in for a slot machine or on a lottery ticket, groups of people can often find themselves with a claim to a significant amount of winnings.

Those group wins are subject to taxation just as much as individual wins. As expected, there’s a form for that.

If your group of friends scores big, you will need to fill out IRS Form 5754 to report the winnings for tax purposes. One of the group will have to designate themself as the primarywinner, and the other members of the group will have to note the share of the prize they are claiming. So, if you hit it big with your buddies, you might need a calculator.

Once you’ve got the form filled out, send it to the IRS. If the win occurs at a casino, casino management might want a copy of the form for its own records, too.