Playing at sweepstakes casinos gives you the opportunity to win real money playing thousands of free online casinos games. Just because the games are free doesn’t mean that your winnings are tax-free.
While the rules differ slightly depending on your state, you are likely going to be on the hook for taxes on any winnings.
This guide will tell you everything you need to know about paying taxes on your sweepstakes casino winnings.
SweepsKings experts have done extensive research to provide up-to-date and accurate information regarding tax requirements on sweepstakes casino winnings. However, we are not accountants or lawyers, and we therefore urge you to seek professional advice before filing for taxes.
Online Casinos with Prizes Explained
Sweepstakes casinos, also called social casinos, are a type of online casinos. What distinguishes them from real money online casinos is that you do not need to deposit any money to play.
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Instead of depositing and playing with your cash, you play casino games using virtual currency, such as gold coins or sweeps coins. When you sign up for a sweepstakes casino, you will instantly get some free virtual currency to help you get started. This means you can start playing free casino games as soon as you sign up.
Popular games at sweepstakes casinos include online slots; online blackjack, roulette, baccarat, and other table games, game shows, and even live casino games.
While the currency you use on these games isn’t real, you can win real money playing sweepstakes casino games. The premium virtual currency can be redeemed for real cash prizes, sizable ones even.
Do You Need to Pay Taxes on Sweepstakes Casino Winnings?
Because sweepstakes casinos are not like traditional real money casinos, many states do not treat them like gambling establishments. This is why sweepstakes casinos are legal in some states that have strict bans on online gambling. The federal government does not make the same distinction.
In the eyes of the federal government, and more importantly, the IRS, sweepstakes casino winnings are exactly the same as traditional casino winnings. The federal government considers casino winnings as income. This means you have to pay taxes on sweepstakes casino winnings too.
How To Report Your Sweepstakes Casino Winnings
How much you pay in taxes on your sweepstakes casino winnings depends on your overall income. The IRS taxes casino winnings as traditional income. This means your winnings will be added to the rest of your income and the IRS will determine your tax rate based on your overall earnings.
To report your sweepstakes casino winnings to the IRS, you must fill out a Form 1040 with your overall winnings throughout the year. If you’ve ever filed taxes, you’ll be familiar with this form, since it’s the standard form you’d use to report all income. Gambling winnings should go in the “other income” box.
The Form 1040 isn’t the only tax form you should familiarize yourself with though before you think about paying taxes on sweepstakes casino winnings. You also need to understand a little about 1099-MISC and W-2G forms.
If you win a single prize worth more than $600 playing a sweepstakes casino game, the casino site will also produce a 1099-MISC and report your win to the IRS.
If you get really lucky and win a prize of $5,000 or more, the sweepstakes casino will withhold 24% of your prize and issue a W-2G tax form showing how much has been withheld. You’ll use this form to report how much taxes you’ve already paid when you file your taxes the following year.
State-by-State Tax Rate on Sweepstakes Casino Income
If you live in the following, your state does not charge income tax on sweepstakes casino winnings:
If you live anywhere else in the US, you are required to pay state income tax on gambling winnings, including sweepstakes casino prizes.
In the vast majority of cases, your sweepstakes casino winnings will be taxed as regular income, meaning your winning will be taxed like the rest of your regular earnings. However, if you live in California, Delaware, New Hampshire, or Pennsylvania you do not have to pay any taxes on gambling winnings, including prizes won at sweepstakes casinos.
State tax laws change much more frequently than federal ones do, so be sure to double check with your state’s relevant bodies before filing for taxes.
Tips For Reporting Your Sweepstakes Casino Winnings
As you can now see, paying your taxes on sweepstakes casino winnings is very easy. All you need to do is report how much you won on your Form 1040 when you file your taxes. Keeping track of this can be difficult though.
To make sure you avoid getting in trouble with the IRS, be sure to keep track of your wins and losses. Keep deposit and withdrawal receipts, any tax documents your casino gives you, and any other proof of your winnings.
Finally, be sure to read through a casino’s terms and conditions. They are supposed to withhold taxes on big wins, but not every site does. If they don’t, you’re on the hook for making sure you report your win and paying the taxes owed.
Conclusion
Sweepstakes casinos are a great way to win real money playing fun online casino games. If you are lucky enough to win big, hopefully you now know how to stay out of trouble and to pay your taxes on sweepstakes casino winnings.
FAQs
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Author: Jon Ridehalgh
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