Are My Gambling Winnings Taxable in New Jersey?
Gambling winnings are fully taxable, says the Internal Revenue Service, and the income must be reported on your federal income tax return. Gambling income includes, but isn't limited to, winnings from lotteries, raffles, horse races and casinos, according to the IRS, and includes the fair market value of any prizes won.
Depending on the amount of winnings, a portion of federal tax may have already been withheld, which is indicated in a W-2G form mailed to you from the gambling operator. If you don't receive a W-2G form and no tax was withheld, you are still legally obligated to report gambling income on your federal and state income tax returns.
What is the Gambling Tax Rate in New Jersey?
Gambling winnings are subject to a uniform 24% federal tax, regardless of your eventual federal income tax bracket, that is automatically withheld when winnings rise above a specific threshold (the thresholds vary depending on the type of gambling, see below).
In New Jersey, the state withholding rate on gambling winnings is 3%.
How to Claim and Report NJ Gambling Winnings for Taxes
Bettors will receive a W-2G form from the payor (casino, online gambling site, online poker site, etc.) if their winnings exceed a specific amount. The W-2G includes both the amount of the winnings and amount of tax already withheld (if any). The payor also sends a copy to the IRS.
Bettors will receive a W-2G form if their gambling winnings exceed any of these thresholds from the previous calendar year:
Poker Tournaments: Winnings exceed $5,000, not including the buy-in amount.
Slot Machines: Winnings exceed $1,200.
Keno: Winnings exceed $1,500.
Sports betting, pari-mutuel racing: Winnings of $600 or more and must be at least 300 times the wager amount. Note that the withholding requirement for sports gambling is higher: The IRS will automatically withhold 24% only if the winnings exceed $5,000 and are at least 300 times the wager amount.
Casinos are not required to issue a W-2G for winnings at table games (blackjack, craps, etc.), though the IRS expects players to keep track of their wins and losses.
Report your gambling winnings as "other income" on Form 1040. On your New Jersey tax return, enter the amount under "Net Gambling Winnings."
Gambling winnings from a New Jersey source by non-residents are also subject to NJ income tax.
Should I Still Report My Winnings if I Don't Receive a Form W-2G?
You will not receive a W-2G if your winnings don't meet the required threshold. But your winnings are still considered taxable income and must be reported on your federal and state tax returns.
The IRS expects you to keep an accurate account of wagering wins and gambling losses and to provide receipts, tickets and other records to substantiate your totals. If you wagered online, your casino, sportsbook or pari-mutuel platform provides a record of all your wagers that you can easily access.
Can I Deduct My Losses?
The answer is yes, you can deduct gambling losses, but only if you itemize deductions.
The Tax Cuts and Jobs Act signed into law in December 2017 nearly doubled the standard deduction, but also significantly reduced the percentage of taxpayers who itemize deductions. Tax groups estimate only about 10% of taxpayers now itemize.
In addition, deductible losses cannot exceed winnings in any given year. That means if you had $5,000 in gambling winnings and $10,000 in losses, your deduction is limited to $5,000. The remaining $5,000 cannot be carried over to the following year.
If you are able to itemize and deduct losses, be sure you can adequately document them. To substantiate wins and losses, your documentation should include:
- Form W-2G
- Wagering tickets
- Date and type of gambling; who was with you at gambling establishment
- Receipts from gambling facilities
- Credit records (such as casino credit statements), canceled checks, bank withdrawals.
How is the Lottery Taxed in New Jersey?
The IRS requires the New Jersey Lottery to withhold 24% from any prize of more than $5,000.
As for state taxes, only lottery winnings that exceed $10,000 are taxable. The tax rate is 5% for payouts between $10,001 and $500,000; 8% for payouts over $500,000. An additional 8% tax applies to a winner who does not furnish a Social Security number.
What if a Group Wins the Jackpot?
According to the New Jersey Lottery, here is the procedure for groups claiming a prize of $600 or more:
- The group assigns one person to serve as contact.
- The contact person signs and completes a New Jersey Lottery Claim Form on behalf of the group. The contact person is considered the primary recipient of the prize.
- The group's other winning ticket holders must complete IRS Form 5754 to share the prize and related taxes. Each prize winner will receive a W-2G form, listing the amount of winnings.
What To Know If You Don't Report Gambling Winnings
If you do not report gambling winnings, you could face tax penalties and possible interest payments.
It's important to keep in mind that if you received a W-2G form, so did the IRS, which means it is also aware of those winnings. If not reported, the IRS may send you a notice of unreported income. The agency can order you to report that income, tack on penalties and add interest charges to your tax bill.