Gambling is taxed federally as well locally, as in most states.
Iowa has a withholding rule of 5% of your gambling wins, with 24% withheld for federal taxes.
With a little planning, you can make sure that reporting your wins is easy next time tax filing season rolls around.
There is some good news; you can get deductions on your tax bill based on losses. In Iowa, losses can’t be greater than your reported winnings. With Iowa sports betting now online, many more Iowans will be having to report wins.
This page takes you through the practical steps needed to keep your gambling taxes in good order in the state of Iowa.
Below, you’ll find the basics of federal and state taxes and the key ways to report them. After that, we cover the withholding rules for casinos, lotteries and sportsbooks. At the end of this page, you will find group wins and the rules for offsetting losses.
As tempting as it might be to “forget” to include gambling wins on your tax return, you are running a significant risk by doing so.
The sportsbooks, casinos and lottery commission are all obligated to report the winnings of their players. If your return does not match, you could be chosen for an audit.
You must report wins of more than $600 in a year in Iowa. Also, you must report all wins on your federal tax returns.
Losses can be offset against your tax bill. Most gamblers will have both winning and losing sessions.
If you lost overall, then there are no wins to report; the amount comes off of your total bill. If you won enough to trigger a W2-G (form from a casino or sportsbook for wins above certain levels), then you’ll need to report both wins and losses.
You must report all your gambling winnings on form IA 1040.
Since the casinos and sportsbooks will report wins more than a certain amount (along with your Social Security number) on a form W2-G, you need to make sure your entries match up.
You can note of any tax withheld by the casino for federal taxes on IA 1040, which comes under “federal income tax withheld.”
To get an accurate amount, you need to note your wins and losses throughout the year. You can balance losses against your tax bill; however, you can’t offset more than your total wins.
For example, if you are reporting a $10,000 win for the year, the maximum losses would also need to be $10,000. You’ll need to be able to prove this amount in the case of an audit.
In 2018, federal withholding tax was reduced for gambling wins from 25% to 24%.
You’ll need to report those same wins and losses from form IA 1040 at the end of every tax year. While the tax rate is higher, there is a silver lining; you’ll get to deduct all of your losses from your tax bill, assuming you can prove these losses in the event of an audit.
There are different subforms for your tax return to itemize those wins and losses. These are IA 1040 (wins) and Schedule A (losses).
If you win over a certain amount, casinos and sportsbooks are obliged to keep some of the money on behalf of the state and federal authorities.
The amount will depend on which games you are playing.
Slots have a “hand pay” requirement in live casinos if you win more than $1,200 on a single spin. So, this gives the casino the chance to check your ID, create a W2-G form (a copy of which gets sent to the Iowa Revenue Department and IRS) and then it pays you.
A total of 24% gets withheld for federal taxes, along with 5% for state taxes. In some areas, there is an optional local sales tax.
For lottery games, wins of more than $5,000 are subject to withholding. Sports betting and horse race betting have a lower threshold of $600, or 300x your stake.
The Iowa government takes taxes from sportsbooks, as well as the bettors. This tax is set at 6.75% of net revenues. On top of this, there is a licensing fee of $45,000.
While this combination of taxing the books and the bettors generates extra revenue for Iowa, winning bettors are taxed at a higher rate by the federal government.
The lottery is the exception when it comes to taxation, with the profits going to good causes. There is a requirement to pay tax on the winnings for individual players, which are subject to withholding.
If you win the lottery as part of a group or consortium, you’ll need to fill out an extra form (federal form 5754). This paperwork shows that the prize money goes to multiple people, spreading the tax liability within the group.
All the above general information on gambling taxes in Iowa is for casual gamblers. If you gamble for a living through sports betting or horse race betting, then the rules are different.
Here, it might be in your best interest to form an LLC for your business activities. This route is beyond the scope of this page; seeking advice from professional accountants and lawyers is your best bet.
If you live outside of Iowa and win big at a sportsbook or casino, you’ll find that the withholding includes state taxes. If you live in a jurisdiction without state taxes, this might be a big enough amount to be worth reclaiming.
For those who are new to Iowa gambling taxes, there are two key points to take away:
Withholding is a tool that the two tax authorities use to keep tabs on bigger wins. These involve the casinos and sportsbooks holding back some of your winnings for tax purposes. The amount withheld has not changed in many years, despite high inflation.