For some, legal online gambling in NJ has the potential to generate healthy revenues. This may apply only to the lucky few, but you never know if and when Lady Luck will be in your corner.
In any case, it’s important to know where you stand with regard to gambling tax law in the state of New Jersey. Taxation forms an important part of legal gambling regulation in NJ, irrespective if you win.
Read on for a clear and concise overview of your obligations as a gambler in NJ.
Is Gambling Income Taxable?
The short answer is yes - all gambling income is taxable. Hence, gambling gains tax reporting is also a legal requirement.
At a Federal level, gambling income is taxable by way of a non-progressive system. This means that whether your annual gambling profits are $5 or $500,000, you still pay the same flat rate of taxation. A rate currently set at a rather hefty 25%.
If you win a relatively big prize, the operator is legally required to withhold 25% of the total payout for tax purposes. They are also obliged to hand the player a W2-G form to report their winnings to the IRS.
Key Points to Note
- Gambling taxes are different from income taxes in that they are not progressive.
- This means that any winnings are regarded as taxable income by the IRS.
- The type of game determines the threshold of winnings that must be reported to the IRS.
What Does the IRS Consider Gambling Income?
All forms of gambling fall under the same basic taxation rules at a Federal level. Along with conventional casino winnings, this also includes poker winnings, bingo winnings, lottery wins and even the cash won on game shows.
Importantly, it is the responsibility of the player to keep clear, complete and accurate records of gambling winnings to avoid potential penalties from the IRS. On the plus side, all gambling losses can also be deducted from your gambling revenues to even things out.
New Jersey Taxation
All US states impose their own additional gambling taxation policies - New Jersey included. In NJ, any gambling prize of more than $10,000 is considered taxable. Though this refers to individual prize payouts - not total annual winnings.
For example, if you were to take home $9,000 one day at a casino and pocket $8,000 the next through betting, your $17,000 would not be subject to New Jersey Gross Income Tax. However, if you won a single prize of $17,000, the full amount would be taxable.
The New Jersey taxation structure for gambling winnings is as follows:
- 5% for gambling payouts between $10,001 and $500,000;
- 8% for gambling payouts over $500,000; and
- 8% for gambling payouts over $10,000, if the claimant does not provide a valid Taxpayer Identification Number.
It’s worth noting that the above rates apply to residents and nonresidents alike. The state allows donating, splitting and assigning gambling winnings to others to reduce or avoid state taxation by splitting larger prizes into smaller payments. Each would then be subject to the normal 25% Federal taxation rate.
Calculating Taxable Income
Taxable gambling income is calculated on the basis of your profits minus your losses. If your gambling losses augment your total winnings, you will be expected to pay tax on them. You can’t report a negative figure on your tax return in New Jersey - net losses must be reported as zero income.
In all instances, it will usually be necessary to provide extensive evidence of the gambling losses offsetting your winnings, when submitting your tax return. This could include a daily log or your gambling activities, payments and wagers deducted from your bank account, losing tickets/betting slips and so on. This is particularly important if you are claiming extensive losses against equally extensive gains.
The IRS requires the following information to establish and verify your gambling taxation obligations:
- Type of wager or bet
- Name and address of the institution
- Names of other people there at the time
- The amount for each win and loss
Taxable New Jersey gambling winnings should be reported in the category of “net gambling winnings” on your New Jersey Gross Income Tax return.