When most Bay Staters enter one of the three casinos in Massachusetts, it’s likely that taxes are the very last thing on their minds. Taking a chance to win some money, drinking for “free,” seeing a show, or simply relaxing are the main priorities. Since most of the transactions in casinos are cash-based, they seem as if they occur in some sort of pocket dimension, anyway.
Unfortunately, taxes are all around when it comes to gambling in Massachusetts. In fact, the whole reason gambling exists in the state is to provide tax revenue to the government and all 351 cities, towns, and communities in the state. The Expanded Gaming Act of 2011, which allowed for the current roster of casinos, bore that express purpose.
Now, to be fair, the taxes in question for the law flow from the casinos themselves. However, as you’ll discover, casino patrons in Massachusetts are not off the hook for taxes. Both the folks on Beacon Hill and Uncle Sam himself want their cut of any pie coming out of gambling houses in Massachusetts. Here’s how gambling taxes work in the Bay State.
Are gambling winnings taxable in Massachusetts?
Yes. Like most types of income, gambling winnings are taxable at both the federal and state level. Regardless of whether they win $4,999 or $4.99, the law requires people in Massachusetts to document their windfalls and pay a portion to the authorities. However, it is unlikely that many visitors to MGM Springfield, Encore Boston Harbor, or Plainridge Park ever file a record that they made any scores there. Unless they hit one of the casinos’ mandatory reporting thresholds, the responsibility for reporting the income falls upon the gambler.
However, the fun stops if a gambler manages to book a win of $5,000 or more. At that point, the casino is under federal obligation to withhold 24% of the winning amount and issue you a Form W-2G as a record of the withholding. Winners will need to provide their tax identification number and two forms of identification in order to claim their winnings. Failure to furnish a correct TIN used to result in an extra 3% penalty, but thankfully that rule is no longer in place.
Even if the amount you win does not exceed $5,000, the casino is still bound to report wins of a certain amount on Form W-2G as part of its compliance with the IRS. The property won’t automatically withhold if the winning amount is below the $5K threshold, but you would be foolish to omit it from your tax return since a record of it would already be on file. Those mandatory reporting thresholds are as follows:
- Total winnings, or combined bet and profit, of more than $1,200 on a slot machine.
- Keno profit of more than $1,500 on a game.
- Winning more than $5,000 in a poker tournament.
- A game’s profit is more than $600 and is 300 times your bet amount or more.
The majority of Massachusetts players are unlikely to hit those marks most of the time, of course. We don’t know for sure, but we find it otherwise unlikely that most gamblers in Massachusetts bother mentioning their trips to the casinos when they file. However, by law, they should do so.
Federal gambling taxes
As is the case most of the time with the IRS, filing a return that includes gambling winnings involves filling out a form. Despite the information above about Form W-2G, most gambling wins won’t involve paperwork while inside the casino. Furthermore, neither the IRS nor, for that matter, the Massachusetts state government is particularly interested in one discrete winning session. Instead, both entities will simply want the bottom line number for all gambling winnings over the course of the year.
How to report
The first thing to do for the IRS is to fill out a Schedule 1. This form, aptly named Additional Income and Adjustments to Income, serves as a gathering place for all income a person might receive that doesn’t come from a job — especially a job where taxes are already withheld from your paycheck. Line 8b on the form is the correct space for reporting your annual gambling income. You’re then meant to attach this form to the return itself.
You will also need to add the total income from Schedule 1 into Line 8 of your standard return (Form 1040). Now, Schedule 1 does include several lines for listing other expenses, which might reduce the bottom line taxable income on the form. Gambling losses are not one of the items on the list, but you will need to add any suitable deductions and put that amount into Line 10 of your 1040. Thus, for all intents and purposes, gambling winnings count like any other type of income and are taxed accordingly.
What if I don’t receive a Form W-2G?
Although casinos are bound to issue W-2Gs in those instances mentioned above, it’s possible that errors might occur. It’s also possible that the casino reported the W-2G but simply neglected to give you a copy. There are a few things that players should do if they don’t have a W-2G they believe that they should:
- Keep accurate personal records of winnings. Since they should be preparing to report their total gambling income, anyway, this suggestion shouldn’t be a problem for most. However, at the very least, they should mark down any sizable wins in their notes. Anything more than $1,000 is probably worth noting.
- Call or visit the casino cage and request a copy of the form. The casino should have it on file.
- Call the IRS and ask for a copy. It, too, should have it on file.
- Regardless of whether the form actually arrives, report the income anyway. The presence or absence of the form is not what determines tax liability — the winnings do. So, even without proper documentation, it is imperative that players report their total gambling income to the best of their ability.
State gambling taxes
Once people in Massachusetts complete their federal returns, they will need to turn their attention to their state taxes. Like the IRS, the state government counts gambling winnings as part of a person’s taxable income.
How to report
The first step in reporting gambling winnings to Massachusetts is to consider the source of the win. If the windfall occurred via the Massachusetts Lottery or a non-state lottery, you would need to add the winnings to your Massachusetts gross income on Line 8b of your tax return.
However, if the wins happened at one of the other gambling venues in the state, then you will need to fill out a Schedule X form. Line 3 of this form — “Other gambling winnings (sources other than Massachusetts state lottery)” — is the home for the reported income. The report should be for the entire year’s winnings, not simply the one that hit one of the thresholds for reporting. After entering the amount on Schedule X, you should put the amount on Line 9 of your Massachusetts tax return.
Any deductions notwithstanding, Massachusetts taxes all income — including gambling winnings — at 5%.
Are there tax deductions for gambling?
Yes. Both the federal and state tax assessors allow gamblers to deduct a portion of their losses. In both cases, players may deduct their losses up to the level of their reported winnings. In essence, gamblers in Massachusetts can zero out their wins and losses so that they don’t have to pay taxes on wins if they lost more than that. They must fill out a Schedule A, in the case of the IRS, and a Schedule Y, in the case of the Massachusetts Department of Revenue.
Are lottery winnings taxable?
Yes. Massachusetts residents must pay taxes on both Mass Lottery and out-of-state lottery winnings. For the most part, lottery winnings count as regular income, at least as far as the taxing authorities are concerned. So, for the purposes of the IRS, lottery winnings go on the same form as other gambling winnings — Schedule 1.
For the state portion, the place to report depends on the lottery. As mentioned above, Mass Lottery wins go into Line 8b on the standard state income return. Out-of-state wins, however, go onto Schedule X, along with any other gambling winnings.
What if a group wins a prize?
It is commonplace for groups to pool their resources in order to gamble. A group of friends might combine their money on a casino trip, or throw in with one another at the horse track. The most common group situation, of course, is when friends, neighbors, or colleagues pool their money to participate in a multistate lottery drawing.
As usual, the IRS has a form for these events. Form 5754, the Statement by Person(s) Receiving Gambling Winnings, facilitates the filing of Form W-2G for everyone involved. With this form, one person in the group is designated as the actual winner of the prize. Then, others in the group are to write their names and tax ID numbers on the form, along with the amount of their share of the prize. Once the form is ready, the paper goes back to the payer of the prize — either a casino, racetrack, or the Mass Lottery.
What if the prize is not cash?
Not every gambling prize in Massachusetts is necessarily in cash. The Mass Lottery has given away season tickets to Red Sox or Patriots games in the past. One of the two casinos might have drawings for cars or vacations. Even a charitable organization’s raffle might yield a noncash prize.
Unfortunately, taxpayers do not get a free pass on tangible prizes. In fact, the winner must report the prize as income equivalent to the fair market value (or as close as can be estimated) of the prize. So, for tax purposes, a person who wins a $50,000 automobile is no different from a person who wins $50,000 in cash. You will either receive a 1099-MISC from the prize-awarding entity, or you will need to fill one out yourself and include the value as part of your regular income on your main return.
This can present quite a problem for the winner. If the prize’s value represents a significant uptick in your tax bill, you might find yourself in arrears to both federal and state tax authorities over the win. In that case, your only recourse might be to sell the prize and pay off the taxes on it with the proceeds. Of course, there’s no guarantee that the prize will sell for the full price, either.
The bottom line is that prize winners need to consider the tax implications of their win before they officially accept the prize as their own property. The happy event of winning a boat, car, or house can quickly become a nightmare and an albatross around someone’s neck. It might be a better idea to accept a cash payout on the prize, if possible. If not, a player might be quite justified in simply walking away from the item.