For Texans, it’s a tricky situation when it comes to paying taxes on gambling winnings. Currently, the Lone Star State doesn’t allow most forms of gambling or sports betting within its borders.
However, residents of Texas are freely able to use online casinos or to travel to nearby states like Oklahoma and Louisiana to gamble. If they win money while gambling out-of-state or online then Texans are subject to paying a tax on these winnings.
The following is an overview of the gambling income tax in Texas and how gamblers need to report their winnings.
What Are The Taxes On Gambling in Texas?
Texas is one of nine states in the country that do not have a personal income tax. Because of this, there is a common misconception that gambling in Texas is tax-free due to the state income tax exemption. This is partially true; however, U.S. federal law dictates that gambling winnings are taxable income.
There isn’t a specific Texas tax on gambling levied by the state. That being said, gambling taxes must be paid to the federal government on 100% of winnings. And, yes, fantasy sports winnings, including Daily Fantasy Sports contests, are taxable.
Reportable Gambling Winnings For Payer To Issue W-2G
If a certain threshold is met in winnings, Form W-2G will be automatically triggered to withhold winnings.
The gambling establishment (payer) is responsible for issuing Form W-2G to the winning gambler. If they do not issue one by mistake, you are not off the hook.
The threshold to receive a W-2G will depend on which game was being played. Refer to the chart below, according to the IRS1:
| Type of Winnings | Winnings Threshold |
|---|---|
| Bingo/Slot Machine | $1,200 (not reduced by the wager) |
| Keno | $1,500 (reduced by the wager) |
| Poker Tournament/Lottery/Sweepstakes/Wagering pools | $5,000 (reduced by wager or buy-in) |
| Reduced, at the option of the payer, by the wager (exempt: bingo, slot machines, poker tournaments) | $600 or more, AND at least 300 times the amount of the wager; OR the winnings are subject to federal income tax withholding |
How much of your gambling winnings are withheld on the spot? The IRS notes that 24% will be withheld2. It does not matter what federal tax bracket you are in with regard to the amount that is withheld.
As a result, it is important to note you may owe more than 24%. In 2022, there are three income brackets of more than 24%: 32%, 35%, and 37%3.
Let’s assume you are in the 37% federal tax bracket and win a jackpot of more than $5,000. In this instance, 24% is not enough to cover what you owe in federal taxes for your winnings.
The government requires that a total of 37% is paid in federal taxes from your winnings. If you accept the lump sum of a major jackpot, this will likely cause you to jump into the 37% regardless of your other income4.
Conversely, if your income tax bracket is lower than 24% in Texas, you may be eligible for a refund from the federal government.
1099-MISC/1099-K
Additionally, fantasy sports players in Texas may receive a Form 1099-MISC or 1099-K for winnings of more than $6005. Players from states that have legalized sports betting and online casinos are likely familiar with these forms.
Because online casino gambling and sports betting sites are not regulated in Texas (as of March 2023), gamblers will not receive a 1099-MISC, 1099-K, or W2-G from Texas online gambling sites.
How To Report Gambling Winnings In Texas
There isn’t a Texas tax on gambling in the state. Therefore, reporting gambling winnings on your state income tax return is not required.
However, this does not get Texas gamblers out of paying federal gambling taxes.
Gamblers must report their gambling winnings on IRS Form 1040. Specifically, use Schedule 1 on Form 1040 to report your gambling winnings.
Did you not receive a W-2G to withhold your winnings? It is still your legal responsibility to report your gambling winnings on Form 10406.
Deducting Gambling Losses In Texas
Texas citizens can deduct gambling losses on Schedule A of Form 1040, “Other Itemized Deductions”. It is important to maintain immaculate records of your gambling winnings, losses, receipts, and any other documents for proof.
Deductions must be itemized or your losses will not be accepted. Also, note that gambling losses cannot be more than the total amount of gambling income reported on your return7.
If you have any questions or need help completing your deductions, contact a tax professional in Texas. The federal government might owe you money that you are not aware of.
Texas Tax On Gambling Online
Due to current gambling laws in Texas, gambling operators are not permitted to register online casinos and sports betting sites in the state. In other words, Texas sports betting residents have to travel outside of their Texan borders to place bets in person or use betting sites not located within the Lone Star State.
The Senate and House are currently mulling over an online gambling bill in Texas. Governor Greg Abbott has stated that he does not oppose sports betting, but does not want it available on every street corner8.
Note that Texas law does not have any specific language that forbids online gambling activity. It is illegal to register and operate an online gambling operation. But it is not illegal for a resident of Texas to play at online casinos9.
What happens with the gambling income tax in Texas at these online betting sites? Non-Texas online betting sites are not responsible for issuing W-2G and 1099 forms.
Legally, however, it is the responsibility of online gamblers in Texas to report their winnings to the federal government. This includes online operators that are not based in Texas.
Which Non-Texas Based Online Gambling Sites To Use?
Wild Casino is one of our favorite online casinos to use. Although not located in Texas, this online gambling site is perfect for residents of the Lone Star State as it offers a variety of casino table games like roulette and blackjack, along with 400 thrilling online slots real money games.
Furthermore, we’re confident that Texans will love all of the bonuses offered to first time users, crypto enthusiasts, and those reloading their accounts. Just remember to follow the tax laws after those winnings pile up.
Sources
Instructions for Forms W-2G and 5754 (01/2021) | Internal Revenue Service. Retrieved From “https://www.irs.gov/instructions/iw2g”
Instructions for Forms W-2G and 5754 (01/2021) | Internal Revenue Service. Retrieved From “https://www.irs.gov/instructions/iw2g”
2022-20223 Tax Brackets & Federal Income Tax Rates | Forbes. Retrieved From “https://www.forbes.com/advisor/taxes/taxes-federal-income-tax-bracket/”
Tallying Up the Taxes of Lottery Winnings | Intuit TurboTax. Retrieved From “https://turbotax.intuit.com/tax-tips/fun-facts/tallying-up-the-taxes-of-powerball-winnings/”
Tax Considerations for Fantasy Sports Fans | Intuit TurboTax. Retrieved From “https://turbotax.intuit.com/tax-tips/general/tax-considerations-for-fantasy-sports-fans/”
Topic No. 419 Gambling Income and Losses | Internal Revenue Service. Retrieved From “https://www.irs.gov/taxtopics/tc419”
Topin 419 Income and Losses | Internal Revenue Service. Retrieved From “https://www.irs.gov/taxtopics/tc419”
Gov. Greg Abbott: Sports betting ‘just a form of entertainment’ | Caller Times. Retrieved From “https://www.caller.com/story/news/local/texas/state-bureau/2023/02/24/gov-abbott-is-open-to-sports-betting-but-more-leery-of-allowing-casinos/69939750007/”
Texas Laws on Online Gambling | The Law Office of Matthew D. Sharp. Retrieved From “https://sharpcriminalattorney.com/blog/internet-crimes/texas-laws-on-online-gambling/”
