Here’s a pretty straightforward question from someone on a slot forum:
Never had a handpay at a casino. So I was wondering how much taxes are taken out of say like a $1200 win? Is it a percentage? And can you opt to pay taxes later?
When it comes to federal taxes, there’s basically two tiers to a handpay: Under $5,000 and over. When it’s under $5,000, federal taxes do not have to be withheld by default.
You can choose to have taxes withheld upfront, or choose to hold off and deal with it at the end of the year. Those who can itemize can choose to write off their gambling winnings with their gambling losses, but that requires a certain level of recordkeeping. (NOTE: I’m not an accountant, so definitely speak to someone who’s well versed on this if you plan on going this route, and/or gamble regularly and deal with handpays regularly.)
When it comes to state taxes, in some states taxes are withheld by default; in others they’re not. In states where withholding isn’t automatic, you can also elect to have money held upfront or deal with it at the end of the year.
Complicating the rules in some states is games can be governed by a lottery, like some casinos in New York, and so the rules can be based on a lottery’s rules. For example, I received a voucher when I won $600 on a machine, because you had to register yourself for wins at that amount.
No matter whether you choose to hold taxes, or the casino has to, or nothing is held, you’ll be given a W-2G, which is a record of your win, and which is filed with the IRS (so they know it’s coming, and you need to make sure it’s on your tax return accordingly).
If you gamble regularly in a given state, it doesn’t hurt to be versed in the rules there so you know what to expect if you hit the big one! It also helps to think about what you would do in case it happens, so you’re not caught off guard. If you know you’re going to write off the win already, you should not make the mistake of withholding taxes, for instance – you’re just giving a free loan to the government.