Michigan Gambling And Taxes

In Michigan, gambling winnings are subject to taxation.

If you have earned money from a Michigan online gambling site or a retail location, it will be liable to Michigan individual income tax as long as it is part of your adjusted gross income.

It is crucial for you to understand how and when the Internal Revenue Service can become involved if you are a winner at the blackjack table or your preferred sportsbook.

Here is a comprehensive guide on how taxation applies to your gambling winnings in Michigan. It covers the process of claiming your wins and deducting your losses.

What is new for claiming gambling winnings on your 2024 taxes?

Filing your 2024 tax return and reporting your gambling winnings will remain unchanged compared to last year, except for the varying amount you have won, naturally.

In this brief overview, we explored the process of claiming your gambling winnings when completing your 2024 tax return.

What is taxable in Michigan?

When it comes to spending money at a casino, it hardly resembles a formal transaction. Regardless of whether you emerge victorious or face defeat, the ultimate fate of your chips can often give the impression of a fleeting moment.

Regrettably, this is not the case. All earnings obtained in a casino, whether on a state or federal level, are subject to taxation as income.

It is important to include your winnings in your annual tax returns. Despite some individuals disregarding the idea of reporting cash earnings to the government, the IRS considers it on par with income received through checks or direct deposits.

In theory, if you fail to report your gambling income, you could potentially face consequences from either the federal government or Michigan’s tax office. However, it is highly unlikely that they would conduct an audit for small amounts, such as a few hundred or thousand dollars.

However, it’s not to say that they are incapable or unwilling to do so.

Additionally, it’s important to be aware that non-monetary prizes obtained from a casino, such as cars, boats, or other items, are also subject to taxation. The increased value that these winnings bring to your financial standing means that the government will claim a portion of your spoils. It is worth noting that this tax obligation also applies to winners of game show prizes.

What taxes will I have to pay in Michigan?

After preparing yourself for the fact that you have to give a portion of your prize money to the government, you might be curious about who and what you are required to pay. As mentioned before, you will have to pay percentages to both the IRS and the state of Michigan for your winnings in that area.

The IRS, on its part, will require you to hand over 25% of your winnings to the federal government as your share. This percentage is applicable to winnings of any amount. Therefore, even if you win only a dollar, you will still need to contribute a quarter towards the federal authorities.

Moreover, Michigan legislation mandates an extra 4.25% payment to the individuals in Lansing as a result of participating in their casino. Despite being the primary source of tax revenue for state lawmakers, gamblers are not exempt from these additional charges.

To claim smaller wins, it is your responsibility to voluntarily report your gambling winnings to the relevant authorities. As mentioned earlier, it is not permissible to simply keep the money for yourself, but there is no system or oversight in place to ensure your compliance as you leave the casino.

The absence of supervision continues for winnings of up to $5,000. Nevertheless, once you reach that threshold, the casino is obligated to deduct 25% of your winnings on behalf of the government before handing them over to you. Simply provide your name and Social Security number to the casino staff, and your tax obligations will be taken care of before you depart the premises.

While it may be disheartening to lose 25% of your earnings upfront, it is important to note that withholding your name and SSN will not solve the issue. Surprisingly, individuals who choose not to provide their information, regardless of the reason, will face an extra penalty of 3%.

Both options are unfavorable. Keep in mind that the casino will not retain any of the money it withholds. Therefore, it is better to comply and have a chance to continue the fight later on.

If I never win $5,000, will I ever have to pay taxes upfront?

For those who are not big spenders, the notion of ever reaching the minimum amount set by the government for casinos to report winnings may appear unrealistic. Considering that your typical bets range from $5 to $10, it is highly improbable that you will achieve a win surpassing $100, let alone $5,000.

You might be curious if you need to be concerned about the federal authorities finding out about your gambling activities. Regrettably, there are certain situations where the casino is obligated to inform the IRS about your winnings before granting you the fruits of your laborious triumph.

If any of the following events occur, a casino is required to report a win to the IRS by submitting Form W-2G.

• The combined bet and profit on a slot machine surpass $1,200 in total winnings.
• The keno profit earned by a player exceeds $1,500.
• In a tournament, a poker player secures a victory that earns them over $5,000.
• The profit of a game exceeds $600 and is equal to or greater than 30 times the amount of the bet.

Filing this form does not imply that the casino is obligated to automatically collect your winnings. Nevertheless, considering that the government will soon be informed about your win, it would be unwise to exclude it from your return. Therefore, ensure to retain a copy of the form for your personal records.

In essence, if you experience a remarkable victory at a casino, chances are high that the government also desires to keep it in remembrance.

How do I report my winnings?

It is natural to feel disappointed about the obligation to pay taxes on your winnings. However, in the majority of situations, you will accept this and choose to file. Consequently, here is a guide on how to go about it.

Just like anything related to the IRS, there are forms that need to be completed. The initial step is to declare the income on the IRS Schedule 1, which is the form designated for reporting additional income and adjustments to income.

In the form, locate Line 8 under Part I titled “other income.” This is where you should record your winnings and indicate their origin. Generally, stating “Gambling” or “casino” is sufficient to explain the source of the money, but if you have concerns about drawing attention, you can provide specific details such as the casino name and date.

After entering the information into your Schedule 1, you must transfer the same total to line 7a of your standard tax return. This will enable you to include the winnings as part of your total taxable income.

Additionally, it is important to note that your Schedule 1 serves as a platform to account for different deductions such as business expenses or student loan interest payments. Therefore, it is crucial to explore all possible avenues to reduce your taxable income.

Can I report gambling losses in any way?

Naturally, there is always a risk of losing when engaging in gambling. Nevertheless, it is reasonable to question the fairness of the IRS solely focusing on your winnings. You might ponder whether there exists a possibility to report gambling losses on your tax returns.

Surprisingly, it is possible to do so.

Schedule A, provided by the IRS, serves as a means to claim different deductions. While there is no specific line dedicated to gambling losses, you can include your setbacks in Box 16, also known as Other Itemized Deductions, in order to claim them.

There are two rules to consider when claiming casino losses on your tax form. The primary rule states that you cannot claim losses exceeding your reported winnings, and it holds the utmost significance.

Unfortunately, in the event that you report $1,000 in gambling winnings on your Schedule 1, the maximum amount you can offset as losses on your Schedule A is also $1,000. Regrettably, if you experienced a challenging year at the casino, the IRS does not permit you to deduct the loss against your taxable base.

To claim deductions, it is essential to adhere to another rule which requires providing tangible evidence of your losses. Keeping records, receipts, and other relevant documentation is crucial as it substantiates the losses, without which the IRS may reject the deduction as legitimate.

In order to minimize the taxes you owe, it could be beneficial to use your winnings to offset your overall income for the year. Consequently, the IRS needs to verify that the losses you declare are indeed accurate. The likelihood of the agency scrutinizing your finances intensifies as the monetary value increases. Therefore, if you tend to bet high amounts, it is advisable to maintain a detailed record of your transactions.

If you find the idea of keeping records troublesome, consider utilizing your loyalty or membership card at your preferred casino while playing to potentially simplify the process. Since these cards are used to reward you based on your gameplay, the casino maintains a record of your activities. Obtaining a copy of your history from the casino should not be excessively challenging.

As of the end of 2021, the state legislature of Michigan passed a new law allowing individuals to deduct losses as an expense on their tax return. This change was subsequently signed by Governor Gretchen Whitmer.

Do I have to pay taxes if I don’t live in Michigan?

If you’re a resident of Michigan, it is evident that you are required to pay taxes to the state. However, you might be curious about your tax obligations if you are only visiting from another state.

Regrettably, as a nonresident, you are still obligated to pay taxes to Michigan on your gambling winnings. This is a common scenario and there is a specific form designated for this purpose. Additionally, you will need to report your winnings on your state tax return if your state imposes an income tax.

Fortunately, there are a few pieces of positive information to consider. Firstly, the states in closest proximity to Michigan (Illinois, Indiana, Kentucky, Minnesota, Ohio, and Wisconsin) have established mutual agreements with Michigan concerning income earned within its borders. If you reside in any of these six states, there is no obligation for you to file a nonresident return in Michigan.

Another positive aspect is that there is a tax credit available for you to claim on your home state’s tax return. This credit will help offset the taxes you paid in Michigan on your winnings. Therefore, despite having to pay taxes to a state where you don’t reside, you won’t have to pay taxes twice on your windfall. States understand that imposing double taxation on the same winnings may discourage citizens from participating, as they value tax revenue but also recognize the potential consequences.

Do I have to pay taxes if I’m part of a group?

Pooling money is a common practice in various domains, including gambling, where there is often strength in numbers. It is not unusual for a group of friends to contribute funds together, allowing them to bet with a larger sum than they would individually. This collective approach applies whether they are wagering on a slot machine or purchasing lottery tickets, increasing the likelihood of winning a substantial amount of money for the group.

Regrettably, taxes continue to be an inevitable part of life, and both group wins and individual wins are equally liable to taxation. As anticipated, a form is required (you’re likely familiar with it if you’ve made it this far).

In the event that your circle of friends wins a significant amount, it will be necessary for you to complete IRS Form 5754 in order to declare the winnings for tax-related reasons. Within the group, one individual must identify themselves as the main winner, while the remaining members must specify the portion of the prize they are claiming. Therefore, if you strike it rich with your pals, having a calculator on hand may prove useful.

After completing the form, you should send it to the IRS. In case the win takes place at a casino, the casino management may also ask for a copy of the form to keep for their own records.