How Sweepstakes Casino Winnings Are Taxed for the 2025 Tax Year

If you play at sweepstakes casinos and have been lucky enough to win, you may have asked yourself: do I owe taxes on my winnings?

The short answer is yes, winnings are taxable in the US, and understanding how this all works can save you headaches at tax time. To learn more and have all your questions answered, simply read on!

Receiving a 1099-MISC Doesn’t Change Your Tax Bill

Yes, a common source of confusion is the 1099-MISC. Here, the casino is essentially reporting your winnings to the IRS for you. It doesn’t create a new tax – you still owe tax on the same amount you won, whether or not a 1099-MISC arrives.

If your sweepstakes casino sends you a 1099-MISC, it’s not a new tax – it’s just the casino making sure the IRS knows how much you won.

Prizes Over $5,000: Mandatory Withholding

Another figure to be aware of is the $5,000 mark. If you win a sweepstakes prize over this amount, federal law requires the casino or sweepstakes operator to withhold 24% of your winnings and send it directly to the IRS. This is not a separate tax – it’s just a payment towards your federal income tax.

When you file your Form 1040, you still report the full prize amount as income, just like any other sweepstakes winnings. The amount that was withheld by the casino is then credited against your total tax owed. If your total tax is higher than the withheld amount, you’ll pay the difference. If it’s lower, you may receive a refund.

Even when withholding happens, it’s important to track your full winnings and include them on your tax return, because the IRS expects the full prize to be reported – withholding alone won’t necessarily satisfy your tax liability.

Winnings Redeemed as Gift Cards

Many sweepstakes sites let you redeem prizes as gift cards, and it’s important to know the IRS treats gift cards just like cash for tax purposes – the value of the gift card counts as taxable income. For example, if you win a $500 Amazon gift card, you should report $500 as income on your Form 1040 under ‘Other Income’.

The same rules about 1099-MISC forms apply too. If the prize is over $600, you may receive a 1099-MISC showing the value of the gift card. For prizes over $5,000, federal withholding at 24% still applies, even if the payout is a gift card instead of cash.

Even though it’s not cash, the IRS wants the value of the prize reported, so keep track of gift card winnings just like any other prize.

State Taxes Vary

Everyone must file federal income tax, but whether you owe state income tax depends on where you live. Filing is based on your residency, not the location of the sweepstakes casino.

At both the federal and state level, sweepstakes winnings are simply added to your other income for the year. Your total income then determines which tax brackets apply.

For example, if you earn $50,000 from your job and win $5,000 in sweepstakes, your state taxable income would be $55,000 (this is the same totalling method as for federal tax).

States With No Personal Income Tax

The following states do not currently have a broad personal income tax, so sweepstakes winnings are not subject to state income tax for most residents:

• Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
• Tennessee and New Hampshire tax interest and dividends, but not prizes.

States With Personal Income Tax

The following states do tax income and therefore sweepstakes winnings:

• Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia, Wisconsin.

Even if your winnings are small, they are included in your total state income, so it can affect your tax bracket and how much you owe.

Why Your Losses Don’t Reduce Taxes

Here’s the tricky part: sweepstakes are treated as prize income, not gambling income. Unlike traditional gambling winnings, W-2G forms do not apply to sweepstakes prizes.

This means any spending doesn’t reduce taxable winnings like it would with traditional gambling.

For example, if you spend $500 chasing sweepstakes prizes and win $1,000, the IRS will likely tax the full $1,000, disregarding the $500 spent.

Reality check: Even if you technically lost money overall, you could still owe tax on the winnings.

Penalties for Not Reporting

Some players choose not to report sweepstakes winnings, but this is technically tax fraud. Failing to report taxable winnings can result in:

• IRS notices (CP2000)
• Penalties and interest
• Any future tax refunds you’re entitled to can be withheld and used to pay what you owe

Large sweepstakes sites often report winnings to the IRS via a 1099-MISC, so keeping records and filing responsibly is strongly recommended.

Why Some Sweepstakes Casinos Ask for a W-9

Recently, some sweepstakes sites like SpeedSweeps have asked players to submit W-9 forms. This isn’t a new tax, it’s just the casino collecting your tax information so they can report winnings to the IRS correctly, usually on a 1099-MISC if your prize meets the reporting threshold.

Providing a W-9 helps keep everything above board. It ensures the casino has the information it needs to report your winnings accurately and prevents potential issues with withholding for large prizes.

Even if you haven’t submitted a W-9 at a certain casino, you’re still responsible for reporting all your sweepstakes winnings on your tax return.

Quick Recap

Playing sweepstakes can be fun, but the tax rules are strict.

All US players must report winnings on their federal return, and many will owe state taxes too. Losses are usually not deductible, and receiving a 1099-MISC doesn’t create a new tax – it just keeps you and the IRS aligned.

Knowing this upfront should make the 2025 tax season less stressful and allow you to enjoy sweepstakes gaming all the more!