When you started playing poker, you were probably playing with friends, and money was never involved. Now, though, you’ve come to a point where you honed your poker prowess and have decided that you want to start making money from it. However, real poker with real cash winnings is not as simple as a casual game with friends.
Tax laws that apply to poker winnings can be confusing, but it doesn’t excuse you from paying those taxes. Without understanding these laws, you could be in deep trouble before you even start your journey to become the next Antonio Esfandiari.
First just a disclaimer: I do not provide tax, legal or accounting advice. Information on my site is for informational purposes only.
Before we dive into this guide on poker winnings and taxes, let’s get something out of the way: different countries have different tax laws.
Some treat poker winnings as taxable income, while others are taxing companies that take bets. It’s important to know the difference and understand how your country interprets it.
So before you put your poker face on, and start raking that poker bread, let’s figure out which is which, and find out everything about poker winnings tax laws in both the UK and the US.
Poker Winnings Tax in the UK
If you’re crushing tables in the UK, then you’re better off than most poker players. Money that you earn from any form of gambling in the UK is tax-free. This exemption aims to encourage gamblers to spend their winnings onshore rather than try to be creative with their filings. Meanwhile, the HMRC collects 15% to 50% of the gross gaming yield as gaming duty on all companies that accept bets, operate or make money in the country.
The UK started its journey to become a top destination for poker players around the world in 2001. Then-Chancellor Gordon Brown announced that instead of taxing gamblers, the HMRC would collect 15% from the bookmakers’ gross profits. The amendment of the Gambling Act of 2005, further strengthened it by including off-shore companies and online casinos that have a presence in the UK.
However, it becomes a different story if you’re a British citizen who plays poker in the US and has won more than $5,000 in a single session.
In this case, 30% of your winnings will be subject to income tax withholding by the company. Fortunately, due to the US-UK Tax Treaty, the tax laws of the United Kingdom will apply to all earnings made in the US.
Your winnings are still tax-free, but before you can claim the money withheld, you need to do the following:
- Fill out a W8-BEN form.
- Fill out the W2-G form (US Wage & Tax Statement).
- File a W-7 form and get your ITIN (US Taxpayer ID).
- Present your passport as proof of citizenship.
Although there are some exceptions to this law, it won’t affect most poker players in the UK. For example, any form of payment made to professionals is taxable, and this may include free seats at tournaments.
If a professional makes money from that seat, the HMRC can consider it as an extension of the payment. This law is ambiguous, but most poker players, even professionals, won’t be affected by it.
Poker Winnings Tax in the US
The US is notorious for thorough gambling tax laws. The IRS doesn’t leave any gray areas or parts that are ambiguous. Everything that you receive from playing poker is subject to taxation. It may vary based on the amount won and the country where the player resides, but everything must go through these tax laws.
Time and time again, we’ve seen how failure to report income to the IRS has turned the biggest winners into losers in an instant. As a poker player, it’s your responsibility to self-report your poker winnings. We know that it can be overwhelming, so to make it easier for everyone to digest, let’s start this guide by categorizing different types of players.
Different Types of Poker Players in the US
Before figuring out your specific course of action when it comes to filing your taxes, let’s have a quick overview of the different types of poker players. Knowing these types will help you understand the somewhat confusing yet definitive tax laws in the US.
- Recreational players only play for entertainment, and they don’t depend on poker winnings as a source of income.
- Amateur players have a day job, and playing poker is their secondary source of income.
- Professional players rely on playing poker as their main source of income.
- Online / Off-shore players are US residents but are receiving their winnings from an off-shore or online casino.
- Nonresident players are not US citizens but receive their winnings from a casino that operates within the US.
Do Recreational & Amateur Poker Players Pay Taxes in the US?
Any amount that you earn from gambling is taxable income. Being either of the two does not exempt you from your obligation to file your winnings as income tax.
It doesn’t matter where you received your winnings, as long as you’re a US citizen, you need to report all winnings from poker as “Other Income” when filing your income tax return.
The process depends on the amount that you received in one session. The term “session” is ambiguous, and the IRS doesn’t provide enough guidance to define what it is. But for the sake of simplicity, let’s refer to one session as a continuous play at one table, and switching games is a new session.
If you’ve made less than $5,000 in one session on top of the buy-in, you must include it in your income tax return. The casino won’t provide you with a W2-G, but this doesn’t exempt your winnings from taxes.
If you’ve reached the threshold of $5,000 in one session, the casino will withhold 25% of your winnings, and 28% if you didn’t provide your payer tax ID number. They will then provide you with a W2-G form that you need to include when filing your income tax return.
The IRS also considers non-cash prizes, such as trips and cars, as taxable income. It’s your responsibility to determine the fair market value of these prizes, and include it when filing your tax return. High-roller prizes don’t usually concern amateur poker, but it won’t hurt to keep your coast clear.
Do Poker Pros Pay Taxes in the US?
The IRS considers poker pros as self-employed and poker as their profession. The IRS will treat all your winnings as a regular earned income and impose a tax based on the normal effective income tax rate.
Instead of a flat-rate tax of 25%, your taxes will be progressive, so you should be more diligent in keeping a record of all your poker activities. Every prize or pot won, including tickets that you received, either paid for or awarded, should be itemized. You also have the option to include all the expenses you incurred in pursuit of making money. These are expenses that you need for your business, making it eligible for a tax deduction.
Are Winnings on Foreign Soil Taxable?
The USA is one of the only two countries in the world that enforce taxation based on citizenship. It means that all winnings made by US players on foreign soil are subject to US taxes, and the IRS requires every player to self-report all off-shore winnings before the end of the year.
The process for filing will differ between amateurs and professionals, but one thing is for sure – there’s no gray area when it comes to taxes on poker winnings.
If you’re a US citizen, who’s crushing tables on a country that puts taxes on all poker winnings, then prepare yourself for double taxation. For example, you received $10,000 from playing poker at an off-shore casino.
Let’s say that the IRS counterpart in that country imposed a 25% tax on your winnings. When you file your income tax return, back in the Us, you must self-report that $10,000, subjects your winnings to another 25% tax.
Double taxation may be unfair for a lot of poker players, but it is the law. It also encourages poker players to play inland to avoid double taxation.
Are Online Poker Winnings Taxable in the US?
Just like poker winnings on foreign soil, players who received their winnings from an online casino must include it in their income tax return. The IRS may not have the capacity to trace winnings from playing online poker, but the government has improved its monitoring of banking activities.
When declaring winnings from online poker, you should report the income earned, when you receive the money in your account, not after you withdrew the money to your bank account. Even if you don’t plant to encash your income from your account, you should still self-report it to the IRS.
What are the Tax Laws for Nonresident Alien Poker Players?
If you’re a nonresident alien who is playing at US-based tournaments or casinos, your tax withholding will depend on your citizenship:
- If you are from a country that has an existing tax treaty with the United States, your winnings won’t go through tax withholding. Instead, the tax laws in your country will apply to your income.
- Poker players, both amateurs and professionals, who are from countries without an outstanding tax agreement with the US are subject to a 30% income tax withholding. You’ll be required to file the US Nonresident Alien Income Tax Return to the United States IRS at the end of the tax year to get your withholding back.
If you’re a nonresident, it would be best to always have your passport with you. Having your passport makes the process faster and easier for the casinos, especially when determining whether they should withhold your winnings or not.
Can You Deduct Poker Losses in the US?
Yes, you can deduct poker losses to offset your payable taxes. However, it’s not as simple as deducting all your losses against your winnings. If that were the case, the IRS would only be subsidizing most poker players in the United States.
As a recreational or amateur player, you need to report all your losses as itemized deductions on your Schedule A. When filing for itemized deductions, you can never have more losses than wins.
If, for example, you’ve reported total wins amounting to $10,000, and your reported losses sum up to $15,000, you cannot write off the remaining $5,000 or have it carry over to the next year.
Professional players should file their poker losses on Schedule C, together with all the expenses that are related to playing professional poker. These inputs will help determine their income tax bracket for the taxation year.
Can You Recover The Tax Withheld On Poker Winnings in the US?
The short answer is, yes, you can recover tax withholding, either in full or partial. The process of claiming withheld earnings may seem daunting, but it’s not different than filing your income tax return.
The IRS allows you to deduct all poker losses from your reported wins, helping you reduce the amount that you need to pay for the taxes.
After filing your income tax return, and your tax liability is less than the amount withheld, you will get a partial refund. If your tax liability is more than the winnings withheld, you’ll have to pay the difference.
Getting your winnings withheld may be upsetting, but it’s in place to protect you from the nature of the source.
Since playing poker with real money is a form of gambling, and a lot of gamblers lose a huge chunk of their money, it’s a lot safer to have a part of your winnings withheld. It prevents you from owing money that you don’t have and saves you from the penalties that come with it.
How Do You Calculate Poker Taxes in the US?
Knowing how to calculate your taxes will prepare you for the tax season, and will help you avoid surprise charges after filing your income tax return. It’ll also help you make detailed plans, in case you decide to start playing professionally.
Recreational and amateur poker players may have a straightforward process when it comes to filing taxes, but you won’t believe how many poker players are clueless in calculating their taxes.
Always keep tabs on your wins, losses, and income tax withheld because these are the inputs that you need when filing your income tax return.
When calculating your winnings, always deduct the buy-in amount from the money you received. Your losses, on the other hand, can only be the buy-in.
Let’s say you played at a Sit N’ Go table with a buy-in of $300 and received a total of $5,200. Your gross winnings didn’t reach the threshold, so it’s not subject to income tax withholding. Still, you’re responsible for reporting the $4,900.
If you, however, have accumulated $2,000 but lost all of it before you end your session, you can only declare your losses at $300.
As a professional poker player, you have the option to include all business expenses on Schedule C. These expenses include everything related to your pursuit of making money, such as hotel, food, and airfare.
Poker pros usually have their travel expenses as the biggest chunk of their business expense, because the miles driven to and from any establishment where the intent was to win money, is also eligible for a tax deduction.
People who play online poker and are paying their taxes as self-employed can also list all of their business expenses for a tax deduction. It includes everything related to their business, such as a new computer, setups for the workplace, an internet connection, and even your floor mat.
These expenses are eligible for a tax deduction, as long as you purchased everything with the intent of making money.
You need to put all of these expenses in your documentation and compare it with all of your wins. Being diligent in keeping tabs will help you determine your tax bracket and the accompanying tax percentage that you owe the IRS.
Do State Income Taxes Apply to Poker Winnings in the US?
Most states enforce a state tax on winnings from gambling. If you’re in one of these states, you’re required to report your winnings and pay the state income tax.
It’s beyond what you’ve already paid to the IRS, making it very important for every poker player to keep track of their activities. However, some states don’t enforce a state income tax, including:
- New Hampshire
- South Dakota
Tips to Handle Poker Taxes
Taxes on poker winnings may be confusing, but you have to practice due diligence in documenting everything that has to do with all your activities.
You also need to know the difference between recreational, amateur, and professional poker because these different levels of play determine the process of filing your taxes. We know that it can be complicated at first, so we have compiled some tips that can make it more manageable.
Keep Records of Wins and Losses
Even the dullest pencil is better than the sharpest mind, and the same is true in keeping tabs on your poker activities. In fact, the IRS recommends every poker player – from recreational to professionals – to keep a record book that has every detail of all the wins and losses.
This record should include when and where you made your bet, buy-ins, and the amount you won or lost. Since losses are tax deductibles, it will come in handy when filing your income tax return and will help offset the amount that you owe the IRS.
If you have ten poker sessions throughout the whole tax year, where you’ve won a total of $45,000 and lost a total of $10,000, your taxable income will drop down to $35,000. This deduction makes it vital for every poker player to record every win and loss. As a professional, you can use this to determine your tax bracket when filing your income tax.
Keep Receipts, Tickets, and Documents
When playing poker, regardless of your gut feeling, it is important to keep all the documents that you can use to verify inputs on your tax return. Doing this will make it easier for you to organize everything, and save yourself from headaches when filing tax deductibles.
Having an app or tracking software is nice, but when tax season comes, having your buy-in tickets, canceled checks, and credit card records in place will save you a lot of time. For professionals, keeping the receipts of everything that you used to make money is an important part of running a business.
Even players who are making money from playing online poker should have their records ready for verification. Although logging into the account will give you a quick view of all the transactions made, it won’t hurt if you’re keeping a separate manual record of all your activities.
Pros Should Treat Poker As Their Business
Being a professional poker player has more advantages when it comes to taxes, but a lot of professionals don’t make good use of it.
As a poker pro, all expenses that were necessary to win money, and everything that you paid for at a tournament, are qualified for a tax deduction.
However, these benefits also come with bigger responsibilities. For example, if you’re a poker pro, who makes a killing at the tables, the IRS may subject you to estimated quarterly payments.
If you’re missing out on keeping tabs of your wins, losses, and expenses, you’re making yourself vulnerable to uncomfortable visits from the IRS.
If you’re an amateur and has a pattern of winnings, you might want to start playing professionally. It offers a lot of advantages, so much so, that even tax experts like The Bauer Law Office recommend amateurs to consider.
Save a Chunk for the IRS
If you’re consistently raking poker bread amounting to more than $5,000 in every session, it’ll be easier for you to pay your taxes because of the tax withholding. You may have cursed a casino for withholding a sizeable amount from your winnings on a big night, but you’ll soon thank them for making sure that you’ll never owe money that you don’t have.
If you’re trying to stay low and fly under the radar by winning less than $5,000 in every session, it would be wise to stash away a chunk of all your wins.
Unless you reside in a state that doesn’t impose state taxes, setting aside half of all your winnings saves you from a lot of trouble when tax season comes. There’s nothing worse than filing your taxes and finding out that you owe the IRS and your state more than what you have in your bank.
Always remember that unpaid taxes will result in penalties and interests. These consequences are the epitome of negative EV, which is something that you don’t want on your name. It’s always better to prepare for the worst, so make it a habit to stash half of your winnings.
Consider Moving to Another State
No one can get away from taxes, and no one should even think of trying to finesse their tax obligations. Sure, it’ll take away a sizeable amount from your wins, but there are a few things that you can do to reduce your taxes, such as moving to a different state.
A lot of states are enforcing state taxes, which is a tax that you need to pay on top of the one that you paid the IRS.
Some states like California and New York have higher state taxes, while states like Connecticut, Illinois, Massachusetts, and Ohio don’t accept losses as tax deductibles. These states are not as friendly for poker players as the nine states that we have mentioned earlier in this guide.
Moving to another state doesn’t exempt you from taxes, but using existing laws to your advantage can increase your take-home cut from all your winnings. If you want to pursue poker as a profession, moving to another state is worth considering.
File Your Taxes!
The last tip, and probably the most obvious one, is to file your taxes diligently. You’ll be surprised by the number of poker pros who don’t take taxes seriously, and if you’re one of them, it can have a massive impact on your career.
Having your taxes filed and settled, makes you prepared for the big night. Nobody wants to take home boatloads of winnings, only to find out that it’s not even enough to cover the money they owe the IRS. You can be creative with taxes, but it is something that you cannot evade.
Death and taxes are the only two things certain in life, and this is especially true even for poker players.
The laws may be confusing at first, but knowing how to categorize yourself as a poker player is the first step. It’s also important to understand that the IRS isn’t leaving any part of the tax law to different interpretations.
If you are a US citizen, the IRS won’t care where and how you’ve made your money; it’s subject to taxation, and it’s your responsibility to self-report all of your income.
In closing, here’s a thought that might give you more motivation to familiarize yourself with the US Tax Laws: the IRS charged Al Capone with tax evasion for not declaring the income he generated from his illegal operations! Just think about that.