New Problem for Online Gamblers: Paying Taxes on Winnings

Winners on online gambling sites in Nevada, New Jersey and Delaware—the three states that have legalized online gambling—now face having to pay taxes on any winnings in 2013. Many players choose to have casinos withhold taxes for them.

With online gambling going live in Nevada in early 2013 and later in the year in Delaware and New Jersey, many online gamblers are facing something new—paying taxes on their winnings.

Before online gaming became legal in the U.S., most, if not all online gambling was done on unlicensed international sites that often did not co-operate with the Internal Revenue Service. But the new legal sites do, and the Las Vegas Review Journal recently looked at the implications.

Nevada is the only state that does not have a data-sharing agreement with the IRS, the paper reports, but the federal government can still deliver a summons to a regulated site and track down a player’s records, said Russ Fox, a federally licensed tax practitioner in Las Vegas who has specialized in gaming for 15 years.

“Now if the IRS wants to get the records, they can,” Fox told the paper. “Those companies will be cooperating. They have to.”

For tax purposes, online winnings are no different than winnings inside a brick-and-mortar casino. In cash games, where players wager with table stakes, players must keep their own records. But tournament winnings are treated differently, according to the Review Journal.

Players must report wins of $600 or more in a “freeroll” tournament or a net of at least $5,000 in a regular tournament win. Casinos often automatically withhold 25 percent for the government the paper said.

Players are automatically emailed a request for tax information by the casino, said Seth Palanksy, vice president of corporate communications for Caesars Interactive Entertainment Corp., which operates

The site keeps the winnings until the player provides the necessary details. Palanksy told the paper that the majority of people want the taxes withheld in advance.

For cash game records from online sites, players can also request documentation that shows their wins and losses on the year, according to Palansky.

Players may also be liable for state incomes taxes as in New Jersey.