If you’ve hit a jackpot on slot machines or beat the odds on a sports bet in Indiana, then after boasting on social media, you need to pay your share to both federal and state governments. This is because all forms of gambling profits are considered taxable income, including earnings from:

• Lottery
• Slots
• Table games
• Sports betting
• Horse racing

Regardless of whether you win a structured Rock-Paper-Scissors competition with a cash investment, taxes must be paid on your earnings. Additionally, prizes that aren’t in cash, such as goods, must also be declared on your federal and state income tax returns.

Believing that the Internal Revenue Service and the Indiana Department of Revenue will remain unaware is foolish. The entities that distribute the prizes, like casinos or sportsbooks, maintain receipts and report them.

What is the tax rate on gambling winnings in Indiana?

The federal tax rate on winnings over $5,000 is 24%, effective from tax years following 2017. Depending on their amounts and sources, winnings below the $5,000 threshold must also be reported.

At present, a personal income tax rate of 3.23% is applied in Indiana. This tax is applicable to nearly all gambling winnings.

Typically, casinos withhold 25% of your winnings for tax purposes, but this is only standard if you give them your social security number. If you choose not to provide your social security number, they usually retain 28%.

How to Ascertain if My Earnings are Taxable Income

Casinos typically offer another service for mutual benefit – sending you the necessary paperwork. Thankfully, in Indiana, you can use the same form for both purposes.

The W-2G form, titled “Certain Gambling Winnings”, provides a record of your yearly gambling earnings to both you and the IRS. This is especially useful if you haven’t been diligently tracking your winnings.

This form will include the total amount of any qualifying winnings from the year for federal taxes. This total will comprise of:

• Your earnings, not lessened by the bet, of a minimum of $1,200 from a bingo game or slot machine.
• The winnings from a keno game, minus the wager, amounting to a minimum of $1,500.
• Your earnings from a poker tournament, minus the wager or buy-in, amounting to a minimum of $5,000.
• The winnings, excluding those from bingo, slot machines, keno, and poker tournaments, may be reduced by the wager at the payer’s discretion. These winnings are $600 or more, and at least 300 times the amount of the bet.
• The winnings you have that are subject to federal income tax withholding (either through regular gambling withholding or backup withholding).

Instructions for Reporting Gambling Winnings from Indiana to the IRS

The IRS mandates the reporting of all your eligible gambling winnings for the year on Form 1040. If you receive a W-2G from the entities that paid your winnings, calculating the total winnings and the withheld tax becomes straightforward. You just need to sum up these amounts and then input the totals on the 1040.

Sum all the numbers from Box 1 on the W-2G forms and separately, total all the numbers from Box 2. Record the total from Box 1 on line 21 of the 1040 form and record the sum of Box 2 on the line marked as federal income tax withheld.

Just because the game operator failed to do their job and you didn’t get a W-2G, doesn’t mean you’re exempt from responsibilities.

You must continue to declare all your annual gambling winnings on form 1040. To accomplish this, complete Schedule 1, listing your gambling earnings under “Other Income.” Then attach it to Form 1040 and incorporate it into your personal income tax return.

What if you weren’t going it alone, but combined your resources with others to increase your chances of a big win? This wouldn’t significantly change much.

How to Remit Taxes on a Jointly Won Prize

The IRS is ready for this situation. Your go-to is Form 5754.

Use this form when you receive gambling earnings not under your name on a W-2G. This form is also suitable for those part of a group of two or more people dividing winnings.

It’s crucial to recall that Form 5754 should not be incorporated into your income tax return. Complete it and hand it over to the individual who received the W-2G.

Maintain a duplicate for your files. The individual who initially received the W-2G should return all the necessary 5754s to the casino to ensure the transaction is accurately recorded.

The casino will subsequently dispatch a distinct W-2G to each individual. Following that, the procedure for reporting any individual winnings remains the same.

How to Declare Gambling Profits in Indiana

As mentioned before, Indiana permits the use of Form W-2G for state income tax returns too. To accomplish this, move the sum from Line 7 of your Federal 1040 to Line 1 of your IT-40.

You must report your winnings even if you won them while outside of the Hoosier State. This includes winnings from multistate lotteries. Report these winnings in the same manner as you would for winnings from an in-state game.

However, you can legally reduce your tax liability from gambling winnings only if you choose to itemize your deductions. There is only one way to do this.

Gambling Deductions for Taxes in Indiana and IRS

The IRS permits a deduction for gambling losses. However, you cannot claim it if you opt for the standard deduction on your return.

If you itemize, record your gambling losses on Line 28 of Schedule A, Form 1040. Your deduction cannot exceed your reported winnings.

Simply depositing more into your bank account than you withdraw doesn’t necessarily provide sufficient evidence. You still need to prove your losses.

Expenses incurred during the process, such as the cost of your hotel and meals, are non-deductible. They are simply a necessary part of the out-of-pocket expenses.

Should you choose to itemize and claim gambling losses, it would be advantageous to maintain the following in your records:

• Each wager’s date and type
• The name of the casino where you placed the bet.
• What is the amount you won or lost?
• Wagering tickets
• Canceled checks
• Credit card records

This can also be made simple for you by casinos. If you are a member of their rewards programs, obtaining an annual summary of your gambling losses becomes quite straightforward.

This also applies to any profits made from the most recent gambling choice, legal sports betting in Indiana.

Sports Betting Winnings Taxation

In Indiana, where sports betting is a recent legalization, numerous individuals are wagering on college football and the NFL. If your earnings from betting on Notre Dame or Purdue football games surpass $600, it is considered taxable income. The location of your bet placement is irrelevant, whether it’s an online sportsbook in Indiana, a casino, an off-track betting kiosk, or even from your phone at home.

Similar to other gaming operators, the book where you placed your bet should provide you with a W-2G. This can be used to report your earnings and withholdings to both the IRS and Indiana.

The upside is that, similar to other gambling losses, the money you lose on sports betting can be deductible if you opt to itemize. However, it is crucial, as with all other deductions you claim, to maintain detailed records.

It’s essential to be aware of your specific tax bracket for any income recognized by the IRS to prevent underpayment. Currently, the top federal tax rate stands at 35%, which is separate from the 3.23% state tax you’d have to pay on your sports betting earnings.

Most operators typically withhold only 25% of winnings, so you might have to pay extra federal tax based on your personal income. This additional amount would be due when you file your taxes.

This is equally applicable to those who play casino games both in-person and online in the Hoosier State.

Online Poker and Casino Games Taxes

While the legalization of online poker and online casinos is still pending, once it occurs, the taxation system will mirror that of land-based casinos.

Game operators are responsible for providing you with a W-2G report of your annual winnings once they surpass specific thresholds, which vary based on the game type. The thresholds for each game are as follows:

• Your earnings of $1,200 or more from a bingo game or slot machine, without factoring in the wager.
• Winnings from a keno game, minus the wager, that equal to or exceed $1,500.
• Your earnings from a poker tournament, minus the wager or buy-in, are at least $5,000.
• The winnings, excluding those from bingo, slot machines, keno, and poker tournaments, can be reduced by the bet amount at the payer’s discretion. These winnings should be $600 or more, and should also be at least 300 times the bet amount.
• The money you win is subject to withholding for federal income tax, which could be either regular gambling withholding or backup withholding.

Holding the W-2G, you possess the necessary document to declare your winnings and pay any related taxes to both Indiana state and the IRS. Let’s go through all the crucial information that applies no matter the source of your winnings:

• The W-2G should be sent to you by the gaming operator with whom you placed your bets.
• The W-2G can be used to report your winnings on your federal and state taxes.
• Your personal income determines how much federal tax you pay.
• The rate in Indiana is 3.23%.
• Even if you don’t receive a W-2G, your winnings must still be reported as income if they meet the requirements.
• Your federal return allows for the deduction of your losses, however, itemization is necessary.
• Should you choose that path, ensure to maintain comprehensive records of all transactions.

Keeping these simple things in mind, you can also protect yourself from tax fraud while gaming in Indiana. Have fun playing the games!