If you live in New York, there’s no escaping taxes. The federal government through the IRS and the state through the Department of Taxation and Finance levies a tax on your personal income every year.
For New York City residents and some in Yonkers, there’s a local income tax, as well. If you gamble during a year, your winnings also figure into this equation.
Whether you buy a winning lottery ticket, beat the house at blackjack, hit a slot jackpot, cash out some poker chips, make a clever wager on a sporting event at a retail sportsbook or stake a winning horse, you will need to offset your winnings with taxes relative to your total income for the year.
Most gambling companies will automatically withhold part of your winnings for taxes, but you should still be aware of your obligations under the law.
While tax professionals can be of great assistance and answer any questions you may have, the basic tenets of the laws in New York are simple. The first thing you need to know is when you actually need to report gambling winnings.
A good strategy to follow: If in doubt, fill it out.
You’re better off reporting everything, even if you didn’t necessarily need to, than risking underreporting. Although the chances of the IRS auditing you might be low, it’s always a possibility.
Underreporting can lead to fines and interest, which could wipe out any savings you might have accrued by not reporting your gambling winnings. There are some minimum thresholds for gambling with the IRS:
Keep in mind that these levels are cumulative throughout the year. So, for example, if you win $1,000 playing poker five times during a tax year, you would hit that threshold.
How do you know how much to report to the IRS for a tax year? A special form, Form W-2G, provides the answer to that question.
The best part of Form W-2G is that you don’t have to fill it out. That’s the responsibility of the casino, lottery, racetrack, sportsbook, etc.
Of course, you need to provide those entities with relevant information, like where to mail the form at the end of the year. You should get a separate W-2G from each entity you gambled with during a year’s time. Form W-2G contains two noteworthy pieces of information:
It’s standard for the company to withhold 25% of your winnings if it has your Social Security number. If you decline to share that information, it may withhold up to 28%.
Once you have the W-2G forms from all the right places, it’s a simple process of addition and transferring your sums to your actual federal income tax return documents.
The W-2G is a simple form. It has two boxes, appropriately named Box 1 and Box 2. The other documents you’ll need here are a Form 1040 and a Form 1040, Schedule 1. Now, open the calculator app on your phone. It’s time to do some addition.
Add up all the figures in Box 1 of each of your W-2G forms. List that total as “other income” on the Schedule 1 form. Finally, put the same total on 7a of your 1040. Now you’re done with Box 1 on all your W-2G forms. It’s time to repeat this process for the numbers in Box 2.
Add up all those figures, and put the total on Line 17 of your 1040. You don’t need to put that total anywhere on your Schedule 1. You’re now done with your W-2G forms for your federal taxes. Attach your Schedule 1 to your 1040 to send off to the IRS. Do not attach any of your W-2G forms. Keep those for your records for at least five years.
Whether your gambling winnings will increase your tax liability for the year depends on how much you won, how much you made during the year from other sources and other deductions you are eligible for.
As far as the IRS is concerned, this is just another form of income, like any sales from a business or compensation from an employer. It all figures into one pot as far as your tax liability goes.
Now that you’ve taken care of your federal responsibility, it’s time to move onto your state obligations.
Just like the IRS, the state of New York considers most of your gambling winnings taxable income. Also in the same way, how much you may owe depends on your unique tax situation.
New York has a graduated income tax wherein the rate you pay increases for the income you make during a year above certain thresholds. The state also has different rates based on whether you are filing as a single person or a married couple.
For single New Yorkers or those who are married but file separately for the 2020 tax year, the brackets look like this:
As for married couples filing jointly in New York during the same time:
If you file as head of a household, the state assesses the following brackets on your income for 2020:
If you’re a New York resident, the form you need is the IT-201. According to the New York Department of Taxation and Finance:
“Section 671(b) of the Tax Law and Section 11-1771(b) of the Administrative Code of the City of New York were amended to provide for mandatory withholding on the proceeds of lottery winnings of more than $5,000 and on the proceeds of more than $1,000 from pari-mutuel wagers on horse races with odds of at least 300 to 1.”
Additionally, any gambling winnings that qualify for federal reporting do the same for NY taxes, too.
So gambling facilities within the state will withhold on your behalf “using the highest effective rate of tax for the tax year in which the payment is made, without any allowance for deductions or exemptions.”
When you collect your winnings, the gambling company should have you fill out a Form IT-2102-G. That acts just like the Form W-2G for any amounts withheld from your winnings for the state. The facility should give you a copy of Form IT-2102-G.
You may find it easier to use your Form W-2G, however, as that will denote your total winnings from that source for the entire year. Take the Box 1 total you put on Line 7a of your IRS 1040 and put it on Line 16 of your IT-201. Specify it as gambling winnings. Then, add up all the amounts withheld for state taxes from all your IT-2102-G forms for the year and add it to your total state withholding for the year that goes on Line 72 of your Form IT-201.
Once you’ve done that, you’re done reporting your gambling winnings for the year to the state. Although New York City and Yonkers assess income taxes in addition to state taxes, you’ve actually mostly completed all you need to do in this regard.
If you lived in New York City for at least part of a tax year or won some money betting on horses at Empire City Casino in Yonkers, you’ve likely had some extra withholding from your gambling winnings for those jurisdictions.
Fortunately, when you completed your Form IT-201, you also filed for the year with NYC. However, you don’t want to miss out on letting the state know about the extra withholding from your IT-2102-G forms.
If you had New York City tax withheld from your gambling winnings, add that to any other NYC withholding and put it on Line 73 of your IT-201. If there was Yonkers tax withheld, add it to your total for that withholding for the year and put the sum on Line 74 of your IT-201. Once completed, you’re done with your obligations for income taxes for these two cities as they pertain to your gambling winnings.
As far as rates go, New York City has four tax brackets, ranging from 3.078% to 3.876%. Yonkers has a tax of 0.5% that it assesses on non-residents who earn income in the city. If you’re a Yonkers resident, the city waives that tax.
There’s another way you may be able to decrease your tax liability for the state that pertains to gambling.
If you’re a New York resident who gambled in another state during the year, the process is largely the same. Just add up the amounts in Box 1 on your W-2G forms and include that in your total on Line 16 of your Form IT-201. If the entity you gambled withheld part of your winnings to pay to that state, you can claim that as a deduction from your NY state taxes.
In that case, you need Form IT-112-R. On Line 15B, fill in the total of amounts withheld from your gambling winnings for another state or states. Attach Form IT-112-R to your IT-201. This should encompass all the reporting scenarios as far as gambling winnings go for New Yorkers.
It’s pretty simple if the gambling companies do their part. But what if they don’t give you the forms you need?
The first step is to contact the company or facility you gambled with. It might have some incorrect information that resulted in your forms getting mis-sent. With the correct information, it can get those forms to you quickly. However, if that’s not the case, you still need to report your qualifying gambling winnings.
In most cases, the gambling company withheld taxes from your winnings already, so you’re not coming out ahead if you don’t report. You’re only putting yourself at risk of overpaying and not getting credit for all the tax withheld. If you’re uncertain of how much you won, bank statements, credit card statements and rewards accounts can be very helpful.
While most gambling prizes are cash, that isn’t always the case. If you won a non-cash prize, such as a boat, car, trip, etc., that is still something of value and adds to your income for the year. Thus, you need to pay up for these prizes, as well.
Just like with cash prizes, the entity that awards the prize has a part to play here.
The company should give you a federal 1099 form with the prize that states the IRS fair market value of the item. You would pay tax on that amount relevant to your personal bracket. The amount on the 1099, along with those of any other 1099 forms you have for the year, goes on Line 21 of your IRS 1040.
For your state taxes, you’ll need form IT-1099-R. This essentially allows you to summarize all your 1099 forms for easy inclusion on your IT-201.
Another special situation happens when you’re part of a group of people who won a prize.
If you went in on a bunch of lottery tickets with co-workers or pooled your money with a friend to place a winning bet, there’s a protocol just for this situation.
Meet federal Form 5754 and NY form IT-340. The gambling companies should provide these forms for you.
On those forms, you’ll put identifying information for everyone in your group. Once you’ve filled them out, make copies for every person involved, and then give the originals back to the awarding entity. It will then use that information to send individual W-2Gs and IT-2102-Gs to each person in the group.
Do not attach the 5754 or IT-340 to your tax returns. Keep them for your records.
It’s not all doom and gloom when it comes to paying taxes on your winnings. As a matter of fact, New York is one of the most forgiving states in terms of allowing gamblers some relief with losing money gambling.
Both the IRS and New York allow you to deduct your gambling losses for the year. The important thing to remember on both returns, however, is that you can only do so if you itemize your deductions.
If you take the standard deduction, you forfeit this privilege. Whether it makes sense to itemize depends on how many deductions you have and what the standard amount is for your tax bracket.
There are two important things to remember here:
Once you’ve totaled all your gambling losses for the year, put that total on Line 28 of Schedule A, Form 1040. Attach that schedule to your 1040. As noted, New York is one of a few states that also allows you to deduct your gambling losses. For that, you’ll need Form IT-196. Put your losses on Line 29 and attach the form to your IT-201.
A common mistake that people make when they deduct their losses is trying to simply subtract their losses from their winnings and then reporting the difference as their winnings for the year. Keep the two amounts separate. Reporting this way can result in underreporting, which can lead to fines and interest.
Additionally, it’s crucial that if you do deduct your losses, keep detailed records of your gambling for at least five years.
If there’s anything you’re uncertain of or something that doesn’t seem clear, a CPA or tax lawyer in New York is your best bet. Enjoy the after-tax portion of your winnings!