If there’s one thing you can be sure of in our modern world, it’s this: there’s no such thing as untouchable income — you will be taxed one way or another.

So how do your online casino winnings affect your tax liability? It’s easy to get swept away in the excitement and endless possibilities of what to do with your loot when you hit the jackpot but the reality is, you first need to factor in the old tax man before you get too carried away.

Tax laws surrounding gambling winnings are complex and tend to vary from state to state and across the world. We’re going to unpack the basics and help you gain a better understanding of the tax implications of your online gambling winnings.

Winnings are income

We hate to be the bearers of bad news but gambling winnings are considered to be a form of income — the same as your salary or any rental income you may receive. Just like your regular income, they’re subject to taxation — whether you play bingo or enjoy Sweepstakes Casino.

So you are legally obligated to report these winnings to your local tax authority when it’s time to file. Failing to do this can result in costly fines or even legal woes, depending on the tax laws in your area.

Some regions treat gambling winnings the same as your regular income by taxing you at the same rate. Others have specific tax rates for gambling winnings that may be lower or higher than the regular income tax rate. And if you’re lucky enough to live in some areas of the UK and Europe, your winnings may not be taxed at all.

Countries where gambling winnings are taxed

In most countries around the world, gambling winnings are subject to income tax. This means that your winnings must be added to your tax return and you will then be taxed according to your income bracket. In the United States gambling winnings are considered a form of income that must be reported to the IRS. Tax rates on winnings will vary greatly from state to state.

The online casino will issue you with a W-2G form if your winnings reach a certain threshold. It’s up to you to keep accurate records of your winnings to submit to the IRS when it’s time to file.

In other countries like Canada, while winnings are also taxable, their rules are a little more complex. Different tariffs may apply for lottery winnings over online gambling winnings, for example. If you’re ever unsure about whether or not you need to declare your winnings, it’s a good idea to chat with a local tax consultant for advice.

Countries where gambling winnings are not taxed

Contrary to the United States, other countries like the United Kingdom, take a much more relaxed approach to taxing gambling winnings.

His Majesty’s Revenue & Customs (HMRC) — the UK’s tax authority — does not see gambling winnings as income from a professional trade, and it is therefore exempt from being taxed. Everything from online gambling to traditional casino winnings and even the lottery is not taxed. Every precious penny of your winnings is all yours!

Gambling is thought of as a leisure activity and instead of taxing you, the player, the government collects taxes from the casinos themselves through licensing fees as well as revenue. There’s an exception to this rule if you’re a professional gambler by trade — winnings of any kind will then be seen as your income and will be taxed accordingly.

This same tax model is followed across most of Europe where taxes are imposed on the operators as opposed to the players. Laws change all the time, and as we’ve mentioned before, laws can differ from country to country (e.g. the law in Spain could be different from the law in Germany). Never assume you’re exempt — check your local tax laws!

Top tips to stay on top of your taxes

Don’t ruin the fun and excitement by landing yourself in hot water! Here’s how to keep on top of your taxes.

1.   Report your winnings

You should be prepared to report your winnings to your local tax authority if you live in a country where gambling winnings are taxable. Once again, you should check your local tax laws around the specific requirements.

Some stricter countries will require you to report your gambling winnings regardless of the amount. Others only require you to report the winnings if they reach a certain threshold. It is your responsibility to understand and comply with the local reporting laws in your area.

2.   Keep accurate records

Even if you are not taxed on your winnings in your jurisdiction, you should keep a record of your income generated through gambling. The easiest way to keep track is by setting up a simple spreadsheet where you can track the following:

• Date
• Game played
• Amount wagered
• Amount lost or won

This not only helps you keep track of winnings for tax purposes but is helpful for responsible gambling purposes by keeping you aware of your spending. When the time comes to report your winnings, you’ll be able to deduct your losses from your winnings so that you are only being taxed for actual income. Obviously, this amount cannot exceed the actual amount of winnings.

3.   Withholding Taxes

In some jurisdictions, online casinos may be legally obligated to withhold a portion of your winnings as taxes. Kind of like how your employer deducts your taxes off of your monthly paycheck.

If taxes have been deducted from your winnings, you will be given a W-2G form (in the USA) with a declaration of how much has been deducted as tax. This form must be submitted when you file so you receive a tax credit towards your overall tax liability.

Conclusion

In the heat of the moment when you win money online gambling, it’s easy to get carried away with dreaming of that down payment on a new car or repainting the kitchen cabinets.

But before you whittle your winnings away, it’s important to always check your tax affairs are in order. Understand your local tax laws or speak to a tax consultant to make sure you’re compliant and avoid expensive fines.