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Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.

The federal government taxes gambling winnings at the highest rates allowed. So do the many states and even cities that impose income taxes on their residents. If you make enough money, in a high-tax state like California or New York, the top tax bracket is about 50 percent. Alabama Gambling Laws – Summary And Look To The Future Every time a change to the laws or an exclusion from them has been attempted – the 1901 wording has prevailed. With the sole exception of dog and horse racing, gambling looks like it will remain limited in Alabama for the foreseeable future.

Casino Winnings Are Not Tax-Free

Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.

By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.

How Much You Win Matters

While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:

• $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
  
• $1,500 (reduced by the wager) in keno winnings.
  
• $1,200 (not reduced by the wager) from slot machines or bingo
  
• $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.
  

Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.

Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.

What is the Federal Gambling Tax Rate?

Standard federal tax withholding applies to winnings of $5,000 or more from:

• Wagering pools (this does not include poker tournaments).
  
• Lotteries.
  
• Sweepstakes.
  
• Other gambling transactions where the winnings are at least 300 times the amount wagered.
  

If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.

The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.

It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.

Can You Deduct Gambling Losses?

If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.

The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.

What About State Withholding Tax on Gambling Winnings?

Michigan Gambling Tax Laws

There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.

Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.

State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.

How to Report Taxes on Casino Winnings

Alabama Tax Gambling Winnings

You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.

You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.

Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.

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An Overview of Gambling Laws in the State Of Alabama

Alabama has seen religious elements and progressives clash over the subject of gambling for many years. The State constitution has a very wide definition of gambling, and as with most States it bans it all – the difference here is that there are very few exemptions. There are harsh penalties, which get worse on Sundays! Over the years there have been carve-outs for dog and horse racing, and for bingo and slots at tribal casinos. Many Alabamians cross over to Mississippi casinos instead – giving a massive boost to the State coffers of that State. This page covers Alabama gambling laws in depth.

First below you will find a quick-fire history, which will give you an overview and flavor of gambling in Alabama – right up to the present day. After that a game-by-game guide to what is currently legal or banned can be found – followed by a timeline of the legislation controls gambling in this State. At the end of this page you will find a quick summary of the present situation and a look into the possible scenarios for the future.

Alabama Gambling Laws – A Brief History

Alabama shares a lot of colorful gambling history with its neighbor Mississippi. The Steam boat casinos with their card-sharps and other shady characters would have been an amazing experience more than a century ago. Unlike Mississippi, who embraced gambling and now receives substantial revenues from casinos – Alabama has gone the conservative route, and almost all gambling games are illegal in this state.

The 1901 State constitution sets the tone. This defines gambling as any game for financial gain with an element of chance. This means that even games of skill are outlawed if there is an element of chance involved. Poker is the obvious ‘victim’ of this loose interpretation.

Greyhound and horse racing did get an exemption from this definition of gambling. The argument goes that this is entirely based on the skill of both the animal and jockey, and so not a game of chance. Pari-mutuel betting can take place on-track and the races can be enjoyed on TV.

There are tribal casinos in Alabama, though these are heavily restricted in terms of the games they are allowed to offer. There are no table games at all, only slots and bingo-type games. There was a later attempt to introduce electronic bingo games. These were allowed and then quickly withdrawn when a Supreme Court ruling judged them to be covered by that 1901 definition.

The status-quo in Alabama is that gambling remains banned, and those who like to gamble either go to offshore online sites (which are not explicitly illegal, though assumed to be covered by the 1901 act), or hop over the Mississippi. This keeps the religious majority in this State happy – and does give some avenues for those who enjoy gambling.

Alabama Gambling Laws – What Forms Of Gambling Are Currently Legal?

Alabama Gambling Compact

Here is a quick run through of the different gambling formats, including a note on whether they are currently legal according to Alabama law.

Casino Games: No, there are tribal casinos, however these are limited to class 2 slots and bingo games. Casino table games are not legal under Alabama law. Crossing the Mississippi to gamble in their casinos where these games are feely available is very popular.

Alabama Gambling Age

Online Casinos: No, again there are no laws relating to the online component, though casino gambling is banned and those laws are assumed to cover the internet too.

Live Poker: No, there is no distinction in the laws of this state between poker and other table games like Blackjack. You can play home-games or ‘social poker games’, which are defined as games between friends where the house or organizer takes no profit or rake. The ‘social’ defense has been used in court, though the understanding of residents is that these games are best kept between friends and not widely advertised.

Online Poker: No, there are no specific laws banning online poker. Poker is not seen as a skill game under the definition of gambling games in this state. Any game with some element of chance is considered gambling. There are no indications that Alabama will regulate online poker games any time soon.

Sports Betting: Yes, you can bet on greyhound racing and horse racing at several tracks in Alabama. This form of gambling was exempted from the 1901 laws as a game of skill in 1971. Gambling is via pari-mutuel pools and can be watched on TV.

Lottery Betting: No, there is no State lottery in Alabama, and this State does not participate in any national schemes.

Bingo: Yes, bingo exists at Indian Casinos, though there are currently legal battles going on covering electronic bingo machines. Bingo and raffle games are also legal under charitable gambling laws, under strict license and conditions.

Alabama Gambling Laws – Timeline of Key Statutes

During Civil War times there were lotteries running which included neighboring Southern States. These ended in acrimony, with Louisiana leaving the deal under protest. The current legal situation in Alabama all comes from the State’s constitution enacted in 1901. It is this which paints the broad definition of gambling – and everything since then has revolved around carve-outs or crack-downs based on this initial legal document. Here is the timeline of events.

1901: Alabama State constitution bans all forms of gambling with wording broad enough to encompass just about every game you can think of.

“…stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence…” (From 13A-12-20)

Over the years this definition has been interpreted as covering any game with even an element of chance. For example, some people argue that poker is a game of skill, however since the turning of cards is a chance factor – this is considered gambling under Alabama law.

1971: Pari-Mutuel betting at greyhound racing and horse racing tracks is ruled Legal by the Supreme Court. This is overseen by the Alabama Racing Commission – and has since been extended to betting on televised live races.

1980: Charitable bingo gambling begins.

1988: Casinos are made legal on tribal territories within Alabama by the Federal Indian Gaming Regulatory Act. These casinos are restricted to slot machines and some type of Bingo games. This leads to the opening of 3 tribal casinos in this State – though most residents simply travel to Mississippi to enjoy the table games which are still banned under Alabaman law.

In more recent years there have been attempts to restart a State lottery, to have electronic bingo machines in the current casinos and a crack-down on video poker machines. While these have been debated in the courts and State government – each time the 1901 law has stood up. As far as gambling is concerned, if there is an element of chance – then it is banned.

One bright note for Alabamans, there has so far been no individual indicted for enjoying gambling online – nor any debate on this by the State government.

Alabama Gambling Laws – Summary And Look To The Future

Every time a change to the laws or an exclusion from them has been attempted – the 1901 wording has prevailed. With the sole exception of dog and horse racing, gambling looks like it will remain limited in Alabama for the foreseeable future. I do not see this State regulating online poker at any point in the future.

Useful Resources:

Alabama Racing Commissions

Interesting Timeline

• http://blog.al.com/wire/2013/02/the_history_of_gambling_in_ala.html

Statutes