- Are gambling losses an allowable subtraction? Gambling/lottery winnings are subject to Michigan individual income tax to the extent that they are included in your adjusted gross income. The Michigan Income Tax Act has no provision to subtract your losses on the Michigan individual income tax return. You cannot net the winnings and losses.
- MICHIGAN TAX TREATMENT OF GAMBLING INCOME & LOSSES In Michigan, gambling income is based on the amount of gambling winnings included in federal AGI (the bottom line of the first page of your Form 1040) without taking into account the itemized deduction for gambling losses.
- All Gambling Winnings Are Taxable Income All gambling winnings are taxable income—that is, income subject to both federal and state income taxes (except for the seven states that have no income taxes).
- No matter your residency, all winnings from gambling at casinos or racetracks in Michigan have to be declared on a Michigan return using Form MI-1040. The state-to-state reciprocal agreements discussed above regarding wages and salaries do not apply to gambling winnings.
Gambling is fun. Taxes are not. Unfortunately, the two have to go together for anything to happen.
For states like Michigan, the only real reason to legalize any form of gambling is the opportunity for tax revenue. Whether it be to pay for schools, roads, or some other project, most governments are always on the lookout for a new revenue stream.
Paying any tax stings, to be sure, but it’s important that you know how and when the taxman might come when you visit one of the Great Lake State’s casinos. So, here is a guide for how taxes apply to Michigan gambling.
Are gambling winnings taxable in Michigan?
Throwing money around in a casino rarely seems like an official transaction. Whether you win or lose, the final disposition of your chips can often feel like a stitch in time.
Unfortunately, it’s not. All winnings that you collect in a casino are taxable as income, both on the state and federal levels. So, you should be reporting those wins on your annual tax returns. Though many people scoff at the notion of reporting cash income to the government, it counts the same as income from a check or direct deposit in the eyes of tax officials.
Failure to report your gambling income could, in theory, land you in hot water with the Internal Revenue Service (IRS) or the state of Michigan Department of Treasury. In practice, those entities are unlikely to audit someone over a few hundred or thousand dollars, but that doesn’t mean they can’t or won’t.
I’ll cut right to the chase: yes, you do need to pay federal taxes on gambling winnings in the United States. This is especially true when you net a big win and receive a W-2G form. According to the IRS, a gambling establishment should issue a W-2G when you win an amount that’s subject to federal income tax withholding (24% of win).
Also, please take note that non-cash winnings, like cars, boats or other objects you may win at a casino are subject to taxes, too. The value that has transferred to you because of the win has increased your financial position, and the government wants its share of the loot. As a side note, game show prize winners have to do the same thing.
What is the tax rate on my gambling winnings?
Now that you’ve steeled yourself to the reality of giving away a portion of your winnings to the government, you may be wondering who and what you’ll be forced to pay. As indicated earlier, you will be compelled to pay percentages to both the IRS and the state of Michigan for your wins.
The IRS, for its part, will demand that you fork over 25% of your winnings to the feds for your troubles. This rate applies to wins of any size, even if you win just a dollar.
In addition, Michigan law requires that you pay an additional 4.25% to the folks in Lansing for having played in their casino. Even though the casinos themselves are the main wellspring of tax income for the state lawmakers, gamblers do not escape unscathed.
For smaller wins, you’ll essentially be on your honor to report your gambling winnings. As stated earlier, it’s not legal just to stick the money into your pocket, but there’s no mechanism or watchful eye to force your compliance.
That lack of oversight extends to wins up to $5,000. However, at that point, the casino itself is bound to collect 25% on the government’s behalf before it releases your winnings to you. Give the cage your name and Social Security number, and your tax bill will be settled before you leave the property. Of that 25%, the casino gives all of it to the government.
Michigan Income Tax Gambling Winnings
Obviously, losing 25% off the top isn’t fun, but please don’t get any ideas about simply withholding your name and SSN. As it turns out, anyone who refuses to provide their information (for any reason) will be subject to an additional 3%penalty.
If I never win $5,000 will I ever have to pay taxes upfront?
If you’re not a high-roller, the idea of ever reaching the federal threshold for casinos to report wins might seem far-fetched. After all, if you usually bet in $5 or $10 increments, it’s quite unlikely that you’ll land a win that exceeds $100, let alone $5,000.
There are, however, some other scenarios in which the casino might have to report your win to the IRS before handing you the proceeds from your hard-fought victory.
A casino must report a win to the IRS with Form W-2G if any of the following events occurs:
- The total winnings, or combined bet and profit, on a slot machine exceed $1,200.
- A player’s keno profit on a game is more than $1,500.
- A poker player wins more than $5,000 in a tournament.
- A game’s profit is more than $600 and is 30 times or greater than the bet amount.
Now, filing this form does not mean the casino has to collect from your winnings automatically. However, since the government will soon be aware of your win, it would be foolish to omit it from your return. So, make sure to keep your copy of the form for your records.
The bottom line is that if you have a memorable win in a casino, it’s quite likely the government wants to remember it, too.
How do I report winnings on my gambling tax form?
As is the case for essentially anything to do with the IRS, there are forms to fill out. The first thing to do is report the income on the IRS Schedule 1, which is the form for additional income and adjustments to income.
On that form, look for Line 8 in Part I, which is titled “other income.” Here is where you will list your winnings and their source. “Gambling” or “casino” are fine for explaining where the money came from in most cases, although you can be more specific regarding the casino and date if you’d like.
Once you’ve entered the information onto your Schedule 1, you’ll need to put the same total onto line 7a of your regular tax return. You will then be able to add the winnings to your overall taxable income.
Your Schedule 1 is also the place to list various types of deductions, like certain business expenses or student loan interest payments. So, make sure you don’t miss out on all the different ways to reduce your taxable base.
How do I claim gambling losses on my taxes?
Of course, gambling comes with the inherent chance of losing. However, you could understandably think that it seems unfair that the IRS only cares about your winnings. You may wonder if there’s a way to claim gambling losses on your taxes.
As it turns out, you can.
The IRS provides Schedule A as a form to claim various deductions. Although there’s no line expressly for gambling losses, you can list your setbacks in Box 16 – Other Itemized Deductions to claim them.
Now, there are two rules that go along with claiming casino losses on your tax form. The first, and most important, is that you cannot claim losses in excess of your claimed winnings.
So, if you list $1,000 in gambling winnings on your Schedule 1, the maximum that you could claim as losses on your Schedule A would be $1,000. If you had a bad year at the casino (as many of us do), the IRS does simply allow you to write off the loss as a deduction against your taxable base, unfortunately.
The other rule is you must be able to prove your losses in some kind of meaningful way in order to claim them. It is vital you keep records, receipts and other documentation to show the losses, or the IRS may not accept the deduction as valid.
Ohio Tax Gambling Winnings
After all, that might be a handy way to offset your winnings from the year and avoid taxation, so the IRS has to be sure you took the beating you claim to have suffered. The chance the agency will take a harder look at you will increase as the dollar amount goes up, so if you’re a bit of a high-roller, it’s a good idea to keep a paper trail for yourself.
If you’re thinking that recordkeeping might be a pain, you can possibly make things easier by using your loyalty or membership card at your casino of choice when you play. Since they award you based on your play, they keep records. It shouldn’t be too difficult to acquire a copy of your history.
For your Michigan tax return, it’s not possible to claim any kind of losses as a deductible expense. However, the state does allow you not to report the first $300 you win on bingo, poker or other casino games from your total household expenses.
Do I have to pay taxes if I’m not a state resident?
It’s pretty clear you have to pay taxes to Michigan if you’re a Michigan resident. However, you may be wondering if you’re still on the hook for the taxes if you’re just visiting from out of state.
Unfortunately, you are still bound to pay taxes to Michigan for your gambling win as a nonresident. Worse yet, you will also have to report your winnings on your return for your own state, assuming your state requires an income tax.
However, there are a couple of bits of good news. First, the states nearest Michigan (Illinois, Indiana, Kentucky, Minnesota, Ohio and Wisconsin) have reciprocal agreements with the Great Lakes State regarding earnings you incur in Michigan. If you live in one of those six states, you are not required to file a nonresident return in Michigan.
The other ray of sunshine is there is, in fact, a tax credit that you will be able to claim on your home state’s return that will offset the taxes you paid in Michigan on your winnings. So, even though you had to surrender taxes to a state in which you don’t live, you don’t have to pay double tax on the windfall. Although states are happy to collect tax revenue, they correctly realize that having to pay tax twice on the same win might lead citizens to decide it’s not worth the effort to play.
Do I pay taxes on group gambling winnings?
In many things, there is strength in numbers, and gambling is no exception. It’s not uncommon for a group of friends to pool their money so that they can roll a bit higher than they would individually. Whether they’re throwing in for a slot machine or on a lottery ticket, groups of people can often find themselves with a claim to a significant amount of winnings.
Those group wins are subject to taxation just as much as individual wins. As expected, there’s a form for that.
If your group of friends scores big, you will need to fill out IRS Form 5754 to report the winnings for tax purposes. One of the group will have to designate themself as the primarywinner, and the other members of the group will have to note the share of the prize they are claiming. So, if you hit it big with your buddies, you might need a calculator.
Michigan Tax On Gambling Winnings
Once you’ve got the form filled out, send it to the IRS. If the win occurs at a casino, casino management might want a copy of the form for its own records, too.