CCH is warning participants in the NCAA college hoops March Madness brackets that any of their winnings in the office pool will be subject to taxes.
That also applies to participants who bet at casinos and sports-betting venues. The tax research and software vendor noted that the American Gaming Association cites an FBI estimate that more than $2.5 billion is illegally wagered each year on March Madness. Other estimates put total for global wagering, both legal and illegal, on the NCAA tournament at around $12 billion. An estimated one in 10 Americans fills out a tournament bracket.
Quicken Loans is even offering a $1 billion to anyone who can predict a perfect tournament bracket by picking the winners of all 63 games. The odds of achieving that are one in 9.2 quintillion, according to USA Today.
Even if you just win at your office pool, it could affect your taxable income. “It’s hard to think about taxes when you’re excited about tracking your favorite team or how much you might take home after pushing away from a casino table,” said CCH principal federal tax analyst Mark Luscombe in a statement. “Even if you’re only contributing a few dollars in a friendly wagering pool or maybe a group lottery ticket purchase, it’s important to know the legality of what you’re getting into as well as what’s considered serious money’ that draws attention from tax authorities.”
For any type of gambling involving money or non-cash prizes, wins are taxable and gambling losses may be deductible to the extent of winnings, CCH noted. For winnings that are over $600 or 300 times the wager, special tax reporting is required. In those cases the payer should provide IRS Form W-2G to the recipient.
On the withholding side, gambling winnings in excess of $5,000 could be subject to a tax withholding requirement in which money is withheld by the payer before the winning payout is made to the recipient.
Tracking Wins and Losses
For those who regularly post wagers throughout the year or make their living by gambling, detailed win-loss reporting records are critical for correctly stating taxable income. Gambling or contest prize winnings (cash or non-cash) for the tax reporting year should be listed on line 21 of IRS Form 1040. Taxpayers may also deduct gambling losses for the year if they itemize their taxes. Losses should be reported on Schedule A (Form 1040), line 28. However, taxpayers cannot report gambling losses that are more than their winnings.
“When reporting gambling wins and losses, you have to keep those numbers separate,” said Luscombe. “You can’t combine your win-loss totals and only report the difference, it really needs to be a clear record of everything you won and lost over the course of the year.”
Holding onto printed gaming records, betting slips and even keeping your own win-loss score sheet can help paint an accurate picture of how much you’ve won or lost. Keeping track of all gambling activities is also important for matching up wins and losses. Businesses or individuals reporting winning payouts may also report the name of the winner, who should be reporting the same amount on their taxes as part of their income.
Information for keeping accurate gaming records includes:
Name and address of gaming establishment and the date of activity;
Specific games or wagers made;
Amount of winnings;
Amount of losses; and
Paper records or receipts (lottery tickets, horse race betting slips, keno tickets, casino credit and debit card data, etc.).
Form 5754, Statement by Person(s) Receiving Gambling Winnings, should be filed by those in a group of two or more who split a grand prize. For more information on reporting gambling wins and losses on Forms W2-G and 5754, visit the IRS online instructions page or www.irs.gov.
Key Points to Remember
Cheering on your favorite team and having fun at the track or casino may be your primary focus when taking part in gaming, but a few key points to always keep in mind are:
All gambling winnings are taxable;
Non-cash winnings should be included; and
Gambling losses may be deductible.
For more information on tax rules around gaming, including circumstances for contests run by tax-exempt, non-profit organizations, there’s a brief video interview with Mark Luscombe at this video link.