Taxes on Sweepstakes Casino Winnings

Sweepstakes casinos operating under the sweepstakes model are a bit of new phenomenon in the United States – and with it comes a lot of questions regarding the impact on the taxes.

Although sweepstakes casinos do not operate under the same laws and oversight as real money online and brick-and-mortar casino, it is vital to understand how taxes work on winnings from sweepstakes casinos.

Are Sweepstakes Casino Winnings Taxable? 

Yes. Any and all winnings from gambling, including from sweepstakes casinos, are subject to federal gambling taxes at a flat rate of 24%.

The IRS states that all gambling winnings are fully table and you must report the income on your tax return. Gambling income also extends to winnings from lotteries and raffles, including sweepstakes casino winnings.

Tax Implications Depending on Sweepstakes Entry Method

Since sweepstakes casinos are always free to play, the tax implications may vary depending on how you entered the contest.

If You Entered the Sweepstakes Without Payment

Even if you entered the sweepstakes without making a payment, you are still subject to pay taxes on your winnings. You will need to enter this as income on your tax return, the same as you would if you entered the sweepstakes with payment.

If You Entered the Sweepstakes With Payment

Unfortunately, due to the ambiguous nature of sweepstakes casino not allowing you to purchase sweepstakes coins – instead receiving them for free. You will only be subject to tax on your net wins, and not your losses.

However, if you keep an accurate and diligent record of your wins and losses, you are able to claim gambling losses up to your wins.

Tax Rules on Sweepstakes Prizes 

All sweepstakes, lottery, and gambling winnings are subject to tax. Gambling income includes, but isn’t limited to, lotteries, raffles, horse races, casinos, and sweepstakes. It even includes cash winnings and the fair market value of prizes, such as cars and trips.

Under the current laws, gambling tax rules apply to sweepstakes casinos.

Sweepstakes Prizes valued at $600 or more 

All sweepstakes casino winnings, regardless of prizes, are subject to taxes. However, it is important to note that the payer must issue W-2G forms at a minimum of $600.

It is possible that a sweepstakes casino will not send you this form, but it is still your responsibility to claim these winnings as income on your 1099-MISC tax form.

Sweepstakes Prizes valued at $5,000 or more

Sweepstakes prizes over $5,000 may be subject to a 24% withholding – which essentially means the payer will withhold that information to pay the IRS upfront in the case your fail to report the winnings.

You would report these on a separate box on the same W-2G form of your tax return. If you failed to provide the payer with your social security number, you winnings will typically be subject to backup withholding.

This is why you’ll find a lot of sweepstakes casinos offer a maximum redemption of $5,000 per day.

How To Report Sweepstakes Casino Winnings To The IRS 

You will report your casino winnings on Form 1040 of your tax return; since sweepstakes casinos will not issue a Form W-2G like brick-and-mortar online casinos, you will be required to keep a record of all of these wins and losses and report them as income.

Reporting Winnings from No-Purchase Sweepstakes Entries 

In the case that you do not make a purchase or suffer any losses in order to receive your win – you will simply report these winnings as income on your tax return, which would remain subject to a 24% tax rate.

So, if you were to win big with one of these sweepstakes no-deposit bonuses, you'd be required to report and claim the winnings as income.

Reporting Winnings from Sweepstakes with a Purchase 

In some cases, you may be able to deduct your losses at a sweepstakes casino against your wins. But in order to do so, you must keep an accurate diary or record of your gambling winnings and loose and be able to provide receipts, tickets, or records that show the amount.

Note that you will not be able to claim losses in excess of your wins, so if you have winnings of $10,000 and losses of $8,000 – you will only be able to claim the $8,000 in losses against your wins.

State-by-State tax rate on Sweepstakes Casino winnings

In addition to the federal taxes, 30 states have additional income taxes.

The only states who do not have an income tax – which is relevant for sweepstakes casino winnings as they are treated as income – are:

• Alaska

• Florida

• Nevada

• South Dakota

• Texas

• Washington

• Wyoming

Additionally, California, Delaware, New Hampshire and Pennslyvania do not tax gambling winnings.

You won't even be taxed on your gambling winnings if you play at these Pennslyvania online casinos.

If you’re not in any of these states, gambling winnings are looked upon as income and in turn, subject to tax.

Will Sweepstakes Casinos Report My Winnings To the IRS?

A majority of sweepstakes casinos will not report your winnings to the IRS. However, this does not mean that you’re out of the woods on them.

Many sweepstakes casinos -- for example, Fortune Coins Casino -- will list in their terms and conditions that it is the sole responsibility of the player to report any winnings to the IRS – so they assume no responsibility for any and all tax implications.

It is important to note that although the sweepstakes casino may not report your winnings, you still need to report your winnings.

Final Thoughts on Sweepstakes Casino Taxes

Taxes regarding gambling, especially sweepstakes casinos, can be confusing, but this guide should help you better understand whether, when, and how to file your taxes on winnings at sweepstakes casinos.

If you have additional questions or a particularly complicated tax situation, it’s always best to consult a professional before filing your taxes.