Alongside tipping etiquette, we get a lot of questions around jackpot handpays concerning taxes. Here’s one example of a variation we see a lot:
I spin once a year (on my birthday). I hit a $1,200 handpay. How much in Fed and State taxes do I owe? Bubba R.
One of the reasons why we say we don’t give tax advice (aside from the fact that we’re not accountants), and every person is different, is for questions like this. The answer: It entirely depends on you.
Here’s why: How much you pay in Federal taxes depends on your income. This is effectively extra income. The tax laws are set up that as you earn more money, the percentage at which you are taxed goes up, and those numbers are also adjusted annually for inflation, and periodically when Congress changes up the brackets. (For simplicity we’ll leave the topic of gambling loss deductions to our previous post.)
Since gambling winnings count as income, it will get taxed at whatever bracket you’re at when this is added to your income. If you’re unsure what that means for you, this is where consulting with an accountant can be helpful.
State taxes will be similar. Most states where you live will charge income tax on gambling winnings as a form of income, although a few don’t. Some states charge income tax on winnings achieved in that state, whether or not you’re a resident. So without knowing which state you’re from, or which state you played, we can’t answer directly, but there’s thousands of permutations of state you’re in vs. state you’re from that could impact the answer.
And this is solely a U.S. player in the U.S. view. We hear from many people outside the U.S. wondering about this scenario too, and their answers can also differ.
So ultimately this is not something that’s straightforward. Many players don’t deal with this at all, but it’s good if you’re a regular gambler to understand your own situation so if you do get a jackpot, you know how much taxes to have them automatically hold (no reason risking you spend it only needing to owe it later, especially if this is a rare occurrence) and won’t feel so uncertain the next time around!
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Something I have always wondered is should the fed taxes be deferred? I know state and local have to come out, but the federal taxes can be deferred. Is this something you would do?
Hey Brad! The question of whether you should defer taxes is somewhat unique to each individual’s tax situation. We write about it here, but our advice is to withhold by default – better to be given a refund than to have to scramble to pay a surprise tax bill.