Michigan Gambling and Taxes

Since 2021, Michigan has become one of the leading states in the gambling industry. The state offers more gambling options for online players and sports betters than almost anywhere in the U.S. The large variety of games has brought people from all over the country, new and old players, to Michigan for their chance to win big.

However, some new players might be surprised to hear that their winnings are taxable income in the state of Michigan. Whether you’re playing online or in a casino, all your gambling winnings will get taxed to some extent. Let’s discuss some of Michigan’s most common questions about gambling and taxes. 

What Happens if I Do Not Report My Winnings?

Since federal law requires the casino to fill out a W-2G form for winnings over a certain amount, any large sums of money won get sent to the IRS with the state’s lottery and gambling records.

If you fail to report the winnings with your annual income, the IRS will likely flag your return as invalid until you correct the mistake within the allotted time. Additionally, if you ignore the notifications of error,  the IRS could pursue a court case or even levy your income with interest to pay back the owed taxes.

Continued attempts to avoid the IRS or any owed taxes could result in felony charges and jail time. You should probably just stick to claiming the winnings on your 1040 form, as there is no way to avoid paying the IRS taxes.

How Are Gambling Winnings Taxed?

Gambling winnings are taxed based on the amount earned, like all income. The amount of money you win will determine which income bracket your household falls under and thus determine the percentage of tax withholding from your winnings.

For winnings over $600, federal law requires the payer to issue a W-2G form for tax purposes. However, the amount of winnings necessary for a W-2G form is different for some games. For instance, bingo and slot machines have a threshold of $1200 or more required before a W-2G is issued. 

If you do not receive a W-2G form for your winnings, it becomes your responsibility to report all income on your taxes. Alternatively, some casinos may automatically withhold a percentage of your winnings for taxes. Many financial advisors recommend keeping active and detailed logs of all your gambling bets, including wins and losses.

How Do I Claim My Winnings on My Tax Return?

For large amounts, you should receive a copy of the W2-G form from the casino or place paying your winnings. You must claim the amount on the W2-G as part of your annual income. Alternatively, you can fill out Form 1040 to itemize your return.

Itemizing your return will allow you to claim more specific wins and losses. This is when it helps to keep detailed records of your gambling bets. You may consider hiring a professional to help you sort through your details if you are a frequent gambler or have won/lost significant amounts of money during the year.

Are My Winnings Taxed as a Non-resident?

Yes. Even as a non-resident, your gambling winnings are subject to U.S taxes. U.S federal law requires non-residents to report their winnings by filing Form 1040-NR. Additionally, tax withholding for non-residents may be higher than for residents. 

Can I Write Off Gambling Losses on My Taxes?

Yes, however, only if you itemize your tax return. Furthermore, you can only deduct losses that are less than your winnings. For example, if you lose $5000 and only win $2000, you can only claim $2000 as a deduction.

Financial experts recommend you keep detailed records of all your gambling wins and losses, especially if you plan to claim your losses as deductions. The IRS has the right to request proof of your records to validate your claims.

Claiming your losses as deductions may also help avoid over-taxation of your winnings by balancing your income through your records. You may want to consider hiring a professional to help you itemize your return, especially if you’ve had a lot of wins or losses in the previous year.

What Happens if I Win as Part of a Group?

Group wins are taxable, just like individual wins. However, being a part of a group win could potentially land you more money at the end of the day. The process for filing group wins differs slightly from individual claims. 

If you and a group of friends pooled your money together and hit it big, you’ll need to pick one person to claim themselves the primary winner on Form 5745. The rest of the group members can then claim their portions of the pot on the form. 

Additionally, each group member should receive a W2-G for their individual portions. 

Conclusion

Regardless of your experience level as a player, you can expect to owe taxes on all your winnings in Michigan. Fortunately, winnings over a certain amount get automatically reported to the IRS, which takes some of the leg work out of filing. However, you still must claim the winnings as part of your total annual income to avoid any hiccups or delays in your tax return.