With the recent confirmation that the jackpot handpay level has been increased, another wave of questions have been popping up from players who aren’t fully sure about how it all works. This one we’ve seen a few times recently:
If a jackpot is $2,000, why doesn’t the IRS just tax what you go over that limit. Why tax the whole thing?
Gary M.
The reason why the entire jackpot is taxed is a simple one: When it comes to U.S. citizens, all gambling winnings, regardless of how much or where it’s won, is considered income in the eyes of the IRS for your federal tax return.
When you earn a paycheck, employers report that income to the IRS and collect taxes out of them automatically. When you earn freelance or side income, or are self-employed, when you earn over a certain amount per year from a single entity, the IRS is also notified, even though tax wasn’t taken out of it, and you have to deal with that accordingly.
Gambling winnings fall into that latter approach – if you win a certain amount, in this case off a single wager when it comes to a slot (it can differ for other types of gambling, such as table games or machines based off Historic Horse Racing), the IRS is notified.
This is in part to avoid big wins that then don’t get self reported – it’s sort of a way to reduce the risk the IRS isn’t aware of big opportunities to tax you.
So that means the threshold is a mechanism for notification, not a threshold at which you begin to get taxed.
So in the case of jackpot handpays on slots, the entire win is considered taxable income, because all wins are considered income.
Of course, when tax time comes, with your federal tax return you do have the potential to be able to write off losses against your winnings, which as of this writing will be 90% of your losses against winnings starting with the 2026 tax year.
This is only possible if you itemize (vs. taking the standard deduction), and the IRS advises how you can keep records to prove your wins and losses on its website. And this only speaks to federal taxes, as each state governs income taxes differently and is a separate set of rules that can take into account both where you reside and where the win was achieved.
So as always, because every person’s situation will be different, we advise working with an accountant who is familiar with the gambling laws and can ensure you’re filing accurately. This article should not be considered professional advice.
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