Gambling in the form of casinos, lotteries, and more recently, through digital platforms, is undoubtedly one of America’s most popular pastimes. However, many players, especially those using online or sweepstakes-based services, tend to ignore tax-related matters.
In this article, we outline tax procedures associated with earning gambling winnings, recount the changes made during the Trump Administration, as well as the numerous unintentional responsibilities players tend to neglect.
Key Changes Introduced During the Trump Administration
The Tax Cuts and Jobs Act (TCJA), passed in December 2017 under President Donald Trump, brought sweeping reforms across the U.S. tax system. Among its many provisions were specific changes that affected the gambling community, particularly those who file as professional gamblers.
Before the TCJA, professional gamblers could deduct related business expenses beyond just gambling losses, such as travel, lodging, and entry fees, on Schedule C. These deductions were allowed as long as they could be tied directly to their gambling activity as a trade or business. However, the TCJA modified this, essentially grouping all gambling-related expenses, including business costs, under the gambling loss umbrella. This change limited the total deductions to the amount of gambling winnings, regardless of whether the gambler was a professional or not.
The TCJA also nearly doubled the standard deduction, which led to fewer people itemizing deductions. This development made it more difficult for casual gamblers to claim losses, since only those who itemize can take advantage of such deductions. In practice, this has resulted in more individuals reporting gambling income without being able to deduct any offsetting losses, effectively increasing their taxable income.
The growth of sweepstakes and social casinos, as reported by SocialSweeps.com, has added new dimensions to how winnings are handled. While many sweepstakes platforms use virtual currencies to simulate gameplay, users often have opportunities to redeem winnings for cash or prizes. In such cases, those redemptions are treated as income under U.S. tax law and must be reported accordingly.
The line between “play-for-fun” and “real-value” gaming is increasingly thin, which has prompted both state regulators and tax authorities to keep a closer watch. With Donald Trump back in office in 2025, some industry observers are watching closely to see whether further tax or regulatory changes could emerge that would again reshape the way gambling and sweepstakes platforms are treated at the federal level.
How Gambling Winnings Are Taxed in the United States
The use of traditional casinos is gradually being replaced by new digital ways of engaging people, for example, sweepstake platforms. However, these expansions must be matched with requirements regarding the tax obligations of participants, whether they be occasional participants or seasoned professionals.
Blocked money is paid for tax obligations associated with earnings, and it is well known how seriously the tax administration is on gaming earnings. In 2023, IRS data reported collecting more than 3 billion USD in taxes directly linked to gambling income. This article discusses the regulatory impacts of the changes made in the Trump era, analyzes how gambling earnings are taxed, and the simple reporting issues players should focus on to minimize their exposure.
All types of gambling winnings are treated as taxable income under federal law. Whether you win money on a slot machine, make a bet on a sports game, win a lottery or sweepstakes, or use a digital platform, you must report the income to the IRS. In this regard, the law makes no distinction between offline casinos and online social casinos. Winnings are reported as “Other Income” on Form 104,0 and not reporting could result in penalties, interest, or audits.
Certain requirements, including preset minimum thresholds, trigger automatic reporting by the gambling operator. These winnings will be issued to the winner in a format known as Form W-2G. These thresholds include:
- $1,200 or more from slot machines or bingo
- $1,500 or more from keno
- $5,000 or more from poker tournaments
- $600 or more from other gambling activities, provided the winnings are at least 300 times the original wager
The absence of a W-2G does not free a participant from the need to report winnings. Even informal bets or online rewards that can be converted to cash must be reported.
Gambling losses may be offset, but only to the value of winnings, and only when a taxpayer itemizes their deductions. This implies that taxpayers who take the standard deduction cannot claim any portion of gambling losses, regardless of how significant they are. The IRS requires gamblers to have accurate documentation, including receipts and tickets or other forms of records that substantiate the amount of both winnings and losses.
Reporting Requirements That Could Catch You Off Guard
Many taxpayers believe only large jackpots need to be reported, but the IRS thinks otherwise. Every form of gambling income, regardless of how small it is, must be reported on a tax return. This includes state-level lottery winnings, prizes from fantasy sports leagues, office pool bets, and even profits from online poker. The IRS expects taxpayers to self-report these incomes, regardless of whether the payer issues tax forms or not.
In recent years, the IRS has taken action to find taxpayers not reporting gambling income. In some cases, they have compared W-2G forms that casinos issue with tax returns, audits of those returns, and follow-up flagging discrepancies. Audit after-the-fact under-reporting has also highlighted gambling under-reporting as a significant issue, stating that there are potentially billions of dollars of tax revenue that are unaccounted for.
Players using many different platforms, particularly ones based on online or sweepstakes, may not be bothered by smaller wins spread throughout the year. These likely inconsequential sums could become substantial, and failing to report them could create problems if that taxpayer is audited.
State-level obligations can further complicate things. The federal government alone absorbs a hefty 24% tax on select gambling winnings; however, every state has its take. States like Florida and Texas, for instance, impose zero tax on these forms of winnings, while the likes of New York and California do tax it, but at their standard income tax rate. Players residing in one state and winning in another may even find themselves paying taxes in both places, depending on the specific laws involved.
For participants in sweepstakes or social casinos who participate across state lines, tracking where the winnings originated can become problematic when tax season arrives. The inconsistent treatment of taxation in different places only adds to the confusion while also raising the probability of filing erroneous tax returns.
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