Online Gambling: Taxes on Online Casino Winnings in New Jersey
With the rising popularity of online casinos in New Jersey, more and more people partake in online gambling activities. As a result, players lose or win taxable money.
Therefore, every NJ gambler must understand the possible tax implications of their online gambling.
This article will explore how taxation works for online gambling in NJ and how casinos report winnings to the IRS. We will also cover what you should know to ensure compliance with all tax regulations, so read on.
New Jersey Overview of Online Casino Taxation
NJ is a state where online gambling is entirely legal. It’s regulated by the New Jersey Division of Gaming, which oversees rules adherence. In this state, any form of payout from gambling activities is considered taxable income. That includes slots, poker, lottery, horse racing, sports bets, etc.
In that sense, all winnings from online casinos are taxable both by the federal (IRS) and state governments.
Taxation is applicable for any player’s winnings, excluding their losses, while casinos get taxed on their gross revenue.
On a federal level, all gambling winnings are taxed as ordinary income. That means they are subject to identical taxation rates as other sources of income.
These rates may vary based on your local income and filing status. There are seven brackets ranging from 10% – 37%. If you are an expert gambler who does this for a living, you must pay estimated taxes throughout the year.
Note: These estimated taxes are for people who gamble a lot and have significant income from online casinos.
NJ State Taxes
In addition to the abovementioned, in New Jersey, residents must pay state taxes on their casino winnings.
So in NJ, you have to pay 3% in state taxes plus the federal ones.
In sum, that may look like 24% (IRS) AND 3% from NJ income tax.
Online Casino Winnings: How to Report Them
All online casinos operating in NJ are required to report winnings of $1,200 or more for slots and bingo. Over $1,500 for games like keno and $5,000 for winning from poker tournaments to the IRS.
This happens by issuing a form W-2G to both you and the IRS, describing your winning and any taxes that will be withheld.
In cases when your winnings are below these numbers, it’s still your responsibility to report them on your tax return. All NJ residents need to include their gambling winnings in form 1040 as “other income.”
Author Note: Make sure you do not fill in any wrong numbers to avoid problems with the IRS.
How to Deduct Gambling Losses
While all gambling winnings are taxable income, you may make use of your losses by deducing them to offset tax liability. First, you must itemize your deductions on Schedule A of form 1040.
Unfortunately, there is a maximum amount you can deduct, and it’s equal to your online casino winnings for the year. To prove these losses, you must provide enough documentation, which may be wagering tickets, bank statements, or others.
Best Tips for Maintaining Accurate Records
To ensure proper tax reporting, follow these best practices:
- Keep a winnings log: Record dates, type of gamble (sportsbook, slots, etc.), names, or addresses.
- Save all received receipts from gambling activities: these can serve as taxation deductions from losses or prove your winnings.
- Hobby bank account: It’s advisable to have a separate bank account for such hobbies. This way, you will not mix funds, and accounting will be easier.
- Review and save your online casino statements: This helps monitor wins/losses.
Lastly, keep everything organized, develop a system, and save all documentation so that you will find it easier to access.
Learning how taxes work in NJ and all the possible implications of online gambling and winning taxation is crucial. That will allow all players to stay in compliance with all regulations, both federal and state ones.
In addition, by knowing more about these processes, you can take advantage of tax deductions, lead proper records, and have it easier during taxation season. That’s why you stay informed, play responsibly, and pay your taxes.