Pennsylvania has rapidly risen to become one of the most popular states for gambling, thanks in no small part to the gambler-friendly laws. However, like most areas, there are some tax considerations to know about before you start. The good news is that if you win enough, many gambling companies will help reserve money and pay taxes correctly.
Here’s what you should know about Pennsylvania gambling and taxes, including online gambling.
Are Gambling Winnings Taxable in Pennsylvania?
Yes. Gambling winnings are taxed on two levels: state and federal.
The federal government taxes gambling winnings at a flat rate of 24% if you qualify for filing Form W2-G. If you’re gambling as a regular citizen, you qualify for that form if:
- Your winnings not reduced by the wager are $1200 or more from bingo or a slot machine
- Your winnings reduced by the wager are $1500 or more from a keno game
- Your winnings reduced by the wager are $5000 or more from a poker tournament
- Your winnings from any other games, optionally reduced by the wager, are either $600 or at least 300 times the amount wagered
- Your winnings are otherwise subject to federal income tax withholding (typically gambling withholding or backup withholding)
This form applies to most people who win a significant amount of money gambling. Remember that these amounts apply yearly, so you can’t avoid tax by playing exclusively in small games.
Outside of federal regulations, Pennsylvania’s personal income tax of 3.07% applies to gambling winnings. You can record this on PA-40 Schedule T and Line 8 of form PA-40 when you file your tax returns.
Most online casinos automate the tax process to make this easier for players but read a site’s tax guidelines before you start gambling to know what to expect.
Can I Avoid Paying Taxes on My Winnings?
In most cases, no. You must report all your gambling winnings for state and federal taxes, even if you don’t earn enough to file a Form W-2G.
However, there are a few instances when income from gambling may not be taxed. In Publication 3079, the IRS explains the impact of gaming and gambling on tax-exempt organizations. As the name implies, these groups are not usually required to pay taxes, but gambling can be a gray area.
Generally, gambling is not a charitable activity, so it cannot be more than an insubstantial purpose for something like a 501(c)(3) charity. For instance, if gambling funds most regular operations, it could jeopardize the tax-exempt status. However, this status isn’t usually threatened by one or two small gambling games being organized per year.
Similarly, 501(c)(4) organizations, which focus on social welfare, can’t usually avoid paying taxes on gambling. However, in limited situations, like gambling clubs operated for private groups to help keep morale up, it might be allowed.
The IRS often evaluates these kinds of corner cases on an individual basis, so there’s no specific number of people or amount of money that transforms it from a minor situation to a taxable one.
What Happens if I Don’t Report Winnings?
Casinos will send paperwork to the IRS for any winnings over a particular amount, so there’s no way to hide any big win. If you don’t report it when filing taxes (or, for larger amounts, paying estimated tax), the IRS won’t accept the return and will insist you correct it.
If you continue to ignore them, they may pursue you in court or seize part of your income. In the worst case, you could end up going to jail, and that’s aside from what Pennsylvania might do.
Most casinos already withhold the money to pay the IRS, so you can’t access it even if you don’t report it. The simplest, easiest, and best option is always reporting your winnings to ensure you don’t run afoul of requirements regarding Pennsylvania gambling and taxes.
How Are Gambling Winnings Taxed in Pennsylvania?
Gambling winnings are taxed based on the amount you win. It is usually a percentage of your total winnings, although specific games and events may have different tax rates if legislators decide to go that route.
Online gambling systems usually have an electronic record of all bets you make, which can be helpful if you play a lot and need to figure out what losses may be deductible.
Are Winnings Taxable for Non-Residents?
Absolutely. Non-residents of the United States still have to pay taxes on Pennsylvania gambling winnings. Tax rates may be higher.
Can I Write Off Gambling Losses?
Yes, but there are two limits.
First, you must itemize your tax return if you want to write off gambling losses. That means you can’t take the standard deduction. In some cases, it’s not worth itemizing things. It’s best to discuss matters with a professional tax preparer to help you figure out if you should itemize or not.
Second, you can only write off any losses that are less than your winnings. If you win $3,000 in a year and lose $10,000, then aside from having poor luck, you can only write off $3000.
What’s the Gambling Age in Pennsylvania?
The gambling age Pennsylvania goes with is 21 for general gambling, and 18 for the lottery, bingo, horse racing, and most online casino gambling.
Group winnings usually require a person (or, possibly, an organization) to declare itself as the primary winner for tax purposes. Once that’s determined, all other winners can claim partial winnings. In some cases, there may be tax advantages to claiming winnings as part of a group. Talk to a licensed expert for more information on your options in these situations.
Types of Winnings
The guidance above applies mainly to cash winnings, which include lottery payouts, bets on sporting events, poker, and slot machines.
Non-cash winnings include things like cars and vacations. For tax purposes, you usually need to report the fair market value of these winnings. Casinos typically assign a fair market value before offering such prizes, so you shouldn’t need to estimate it yourself.
There are so many safeguards in place that it’s nearly impossible to avoid paying taxes on gambling winnings in Pennsylvania. Fortunately, casinos do most of the work, so navigating Pennsylvania gambling and taxes to report the right numbers isn’t difficult.