Tax Forms to Expect from Online Gambling
If you gambled online, you may have been fortunate enough to win enough to trigger a reporting requirement. While some online gaming operators issue tax forms at the time of the win, others will wait until the end of the year and issue them all at once.
By this time, you should have access to the relevant forms. Although the reportable amounts shown on the forms could differ from your session results, it is still important to review the forms for accuracy and to see if there was federal or state tax withholding.
Form W-2G
The same reporting requirements apply to online gambling as they do to brick and mortar gambling. You should expect to receive this form if you won:
$1,200 or more on a single slot spin
$5,000 or more (less buy-in) in a poker tournament
$600 and 300 times the wager amount on a single sports bet or table game jackpot.
Remember, these are the minimum threshold requirements. Casinos can still issue a W-2G for amounts below the reporting requirements (although most do not as it is more paperwork for them). For instance, a few gaming operators issue W-2Gs for each online blackjack win over $600. It is important to understand each operator’s internal policies beforehand so you are aware of their reporting procedures.
Note: If you choose to report your winnings using the session method, you may end up reporting different gross winnings than those shown on your W-2Gs.
Form 1099-MISC
You can expect to receive a 1099-MISC if you have net winnings of $600 or more from a Daily Fantasy Sports or “sweepstakes” operator. DFS is considered a “game of skill” for legal purposes and the “sweepstakes” model attempts to circumvent gambling regulation using “free coins”, both meet the IRS definition of gambling for tax purposes. Even if net winnings are reported on Form 1099-MISC, gross DFS and “sweepstakes” activity should be shown as gambling winnings and losses on your tax return.
Reminder: These forms are issued based on the net earnings over the course of the calendar year. Your actual gross winnings and losses must be reported on your tax return, not just your net results. The amount deposited or withdrawn from these sites is not your reportable amount for tax purposes. You must report your gross winnings and losses based on the applicable session results.
Form 1099-K
While the IRS has decided to ignore the new 1099-K reporting limits, some states and companies are still issuing the form based on the updated reporting threshold. This means you may receive a 1099-K if you used a third-party payment processor (such as PayPal) to process $600 or more of withdrawals from online gaming operators.
If you simply used a third-party payment processor to withdraw from an online account, the amount reported on Form 1099-K does not represent taxable income. This amount needs to be reported on your tax return as “nontaxable” (otherwise you will receive an automated notice from the IRS). All related gambling winnings and losses will be reported on your return as if you didn’t receive a 1099-K.
This year, more than ever, there seems to be confusion around when/if online operators or third-party payment processors are going to issue tax forms. If you have any concerns related to a W-2G or 1099-K, please contact us and we can guide you through the process.