State Taxes on Gambling Winnings: A 2025 Guide

• admin
• February 17, 2025
• 6 min read

Understanding Your Gambling Gains and State Taxes

While federal taxes apply uniformly across the United States, state taxes on gambling winnings vary significantly. This comprehensive guide delves into how different states tax gambling winnings in 2025, helping you navigate your tax obligations effectively.

Key Takeaways

• Federal Tax Withholding: The IRS mandates a 24% federal tax withholding on gambling winnings exceeding $5,000.
• State Tax Variations: State taxes on gambling winnings differ widely; some states impose no tax, while others have rates exceeding 10%.
• Reporting Requirements: All gambling winnings—and gambling losses—must be reported as taxable income, using Form W-2G if applicable, regardless of the amount or whether taxes were withheld at the time of payment.

Federal Taxation of Gambling Winnings

At the federal level, gambling winnings are considered taxable income. The IRS requires payers to withhold 24% of winnings over $5,000 for federal taxes. This withholding applies to various forms of gambling, including lotteries, horse racing, and casino games. It’s important to note that this is a withholding rate; your actual tax liability may be higher depending on your total income. Therefore, you may owe additional taxes when you file your annual return.

State Taxation: A Diverse Landscape

State taxes on gambling winnings vary considerably across the United States. Some states impose their standard income tax rates on gambling income, while others have specific rates for such earnings. Notably, a few states do not tax gambling winnings at all.

States That Do Not Tax Gambling Winnings

As of 2025, the following states do not impose state taxes on gambling winnings:

• California: While California has relatively high-income tax rates, it exempts state lottery winnings from taxation. However, winnings from other states’ lotteries or other forms of gambling may be taxable.
• Florida: Florida does not have a state income tax, so gambling winnings are not taxed at the state level.
• New Hampshire: This state does not tax personal income, including gambling winnings.
• South Dakota: South Dakota does not impose a state income tax, so gambling winnings are exempt from state taxation.
• Tennessee: While Tennessee taxes interest and dividend income, it does not tax gambling winnings.
• Texas: Texas does not have a state income tax, and thus, gambling winnings are not taxed at the state level.
• Washington: Washington state does not impose a personal income tax, so gambling winnings are not subject to state tax.
• Wyoming: With no state income tax in Wyoming, gambling winnings are not taxed at the state level.

It’s important to note that while these states do not tax gambling winnings, federal taxes still apply.

States That Tax Gambling Winnings

In contrast, many states impose taxes on gambling winnings, with rates and regulations varying widely. Here are some examples:

• New York: New York taxes gambling winnings as part of its state income tax. The state tax rate can be as high as 10.9%, depending on your income bracket.
• Michigan: Gambling winnings are subject to Michigan’s individual income tax. All gambling winnings included in your federal AGI must be reported on your Michigan tax return.
• Connecticut: Connecticut imposes a state income tax on gambling winnings at a rate of 6.99%.
• Kentucky: In Kentucky, gambling winnings are subject to a state tax rate of 6%.

States with Flat or Progressive Tax Rates on Gambling Winnings

In states that do tax gambling winnings, the rates and policies vary widely. Some states impose a flat tax rate, while others use progressive income tax brackets, meaning the tax rate increases as your total income (including winnings) rises.

Flat Tax Rate States

A few states apply a fixed tax rate on all gambling winnings, regardless of the amount:

• Pennsylvania: 3.07%
• Indiana: 3.15%
• Michigan: 4.25%
• Colorado: 4.4%
• Illinois: 4.95%

In these states, if you win $10,000 from a lottery payout, you will owe the fixed percentage in taxes, no matter your total income level.

Progressive Tax Rate States

Many states apply graduated income tax rates, meaning higher gambling winnings push you into a higher tax bracket. Examples include:

• New York: 4%–10.9%
• New Jersey: 1.4%–10.75%
• Oregon: 4.75%–9.9%
• Minnesota: 5.35%–9.85%
• Wisconsin: 3.54%–7.65%

If you are a resident of these states, your gambling winnings will be taxed alongside your other earnings, and depending on your total taxable income, you could pay significantly more than the base percentage.

State Lottery Payouts and Tax Implications

Lottery winnings, including bingo, are subject to both federal and state taxation. Winners may need to file Form W-2G to report gambling earnings to the IRS. If you win a large jackpot, whether at casinos or through the lottery, you might be given the option to receive the payout as a lump sum or in annuity payments over several years.

• Lump Sum Payments: You receive a one-time payout, but the entire amount is subject to immediate federal and state tax withholding, meaning you may owe additional taxes when filing your annual return.
• Annuity Payments: You receive annual payments over 20–30 years, spreading the tax liability over time and potentially keeping you in a lower tax bracket each year.

Many states automatically withhold a portion of lottery winnings for taxes. For example:

• New York: 8.82% state tax withholding
• Maryland: 8.75% (for residents), 7.5% (for non-residents)
• Massachusetts: 5%
• Connecticut: 6.99%

Special Considerations

• Non-Resident Winners: If you win a substantial amount in a state where you don’t reside, you may be subject to that state’s tax laws. Some states require withholding on gambling winnings paid to non-residents.
• Professional Gamblers: Individuals who gamble for a living are subject to different tax rules. Their winnings are considered self-employment income and are subject to both income and self-employment taxes.

How to Report Gambling Winnings on Your Taxes

Regardless of the amount, all gambling winnings must be reported on your federal and state tax returns. The IRS requires you to report winnings from:

• Lotteries
• Casinos (slots, poker, blackjack, etc.)
• Sports Betting
• Horse Racing & Dog Racing
• Raffles & Sweepstakes

If you win more than $600 from a single bet or lottery ticket, the gambling establishment must provide you with IRS Form W-2G. Even if you do not receive a form, you are still legally required to report all winnings on your tax return.

Can You Deduct Gambling Losses?

Yes, gambling losses can be deducted, but only up to the amount of gambling winnings. However, there are important rules:

• You must itemize deductions on Schedule A of your federal tax return to claim losses.
• You cannot deduct more losses than winnings (e.g., if you won $10,000 but lost $15,000, you can only deduct $10,000).
• You must keep records of gambling losses, including tickets, receipts, and bank statements.

Frequently Asked Questions

Do non-residents have to pay state taxes on gambling winnings?

Yes, if you win money in a state with a gambling tax, you may be required to pay state taxes as a non-resident. Some states, like Connecticut and Maryland, have separate tax rates for non-residents.

What happens if my state does not tax gambling winnings, but I win in another state?

If you live in a state with no gambling tax but win in a state that does tax winnings, you may owe non-resident state taxes. However, many states allow a credit for taxes paid to another state.

Can I avoid state taxes on gambling winnings?

You cannot legally avoid state taxes if you are required to pay them. However, if you live in a tax-free state and gamble there, you may not owe state taxes. Keeping good records and consulting a tax professional can help you minimize your tax liability.

Navigating Your Path to Tax Compliance

Understanding state taxes on gambling winnings and knowing when to schedule a tax consultation is crucial to avoid surprises when tax season arrives. Whether you won a lottery payout or hit the jackpot at a casino, knowing how much you’ll owe and planning accordingly will save you from unexpected tax bills. If you have significant winnings, consulting a tax professional can ensure you comply with all federal and state tax laws while maximizing deductions. For more information on managing your tax obligations, visit FileLater.com.