Jim Landers, Ph.D.
Senior Fiscal/Program Analyst, Office of Fiscal and Management Analysis, Indiana Legislative Services Agency
Legal gambling in Indiana comprises various forms and venues ranging from large-scale commercial casinos with Vegas-like slot machines and table games to small stakes gaming on bingo, raffles, and pull-tab ticket games conducted by nonprofit organizations.
The array of legal gaming in Indiana has grown to include lotto drawings and instant ticket games operated by the Hoosier Lottery and pari-mutuel betting at horse racetracks and off-track betting facilities. A mere twenty years ago, these forms of gambling were illegal in Indiana. This changed on November 8, 1988, when voters repealed the state's constitutional prohibition on lotteries. At that time, Article 15, Section 8 of the Indiana Constitution stated that, '[n]o lottery shall be authorized, nor shall the sale of lottery tickets be allowed.' While this provision specifically prohibited lotteries and lottery ticket sales, it had been broadly interpreted over the years to prohibit other forms of gaming.1 Thus, by repealing Article 15, Section 8, the voters gave the Indiana legislature the responsibility for deciding what forms of gaming, if any, could be conducted legally in Indiana.
In 1989, legislation was enacted to legalize the Hoosier Lottery and pari-mutuel betting on live horse races. The following year, legislation was enacted authorizing nonprofit organizations to conduct bingo, raffles, and other small stakes gaming often referred to as charity gaming. The legislature expanded the pari-mutuel law in 1992 to allow off-track betting facilities and, in 1993, after several years of consideration, enacted legislation to allow gaming on riverboat casinos.
My pension is from a company based in another state. What state is it taxed in? I worked in Indiana six months. Then I worked six months in another state. How should I file my Indiana taxes? I need more time to file my taxes and I think I will owe the Department. What should I do? I have a gambling loss that I took on my federal return. Dec 11, 2008 CONNECTICUT INCOME TAX TREATMENT OF NONRESIDENTS ' GAMBLING WINNINGS. People who are not Connecticut residents do not have to pay Connecticut income taxes on non-lottery gambling winnings in the state. By law, nonresidents owe Connecticut income tax only on Connecticut state lottery winnings exceeding $5,000. Do I have to pay income tax on gambling winnings if I already paid the tax in the state where I won the money? If you were an Illinois resident when the gambling winnings were earned, you must pay Illinois Income Tax on the gambling winnings. Additionally, you may not include the gambling winnings in the non-Illinois portion of Schedule CR.
In the years since, the legislature has augmented gaming laws at various times for various reasons, including allowing dockside and round-the-clock gaming at the riverboat casinos, the Hoosier Lottery to participate in foreign lotteries, and to establish a casino at French Lick. In 2007, the legislature authorized slot machine gaming at the state's two horse racetracks (see Racetrack Casinos sidebar ) and, in 2008, authorized small stakes gaming on pull-tabs and the like in bars and taverns around the state.
This article focuses on the thirteen years of operation of riverboat casinos in Indiana and the growth in the supply of casino games statewide and explains the state excise taxes imposed on the casino owners. It also provides a history of the revenue generated from these excise taxes and reports the purposes for which these revenues have been utilized. We pay particular attention to the state's riverboat wagering tax, which is imposed on the casino's gaming win. The win comprises the wagering dollars retained by the casinos after prize amounts have been paid to winning players. The other excise tax imposed on the riverboat casinos is the riverboat admission tax, a head tax based on the number of gamblers entering the casinos. Note that all years referenced in this article are fiscal years unless otherwise noted.2
The wagering tax is by far the dominant revenue producer of the two excise taxes: it yielded $729.8 million in total revenue during 2008, compared to $81.2 million for the admission tax. More importantly, the wagering tax has become a major source of funding for the state's property tax relief program. In 2008, about $486.3 million in wagering tax revenue was directed to property tax relief. What's more, all wagering tax revenue from the two new racetrack casinos is dedicated to property tax relief. The tax on the racetrack casinos generated almost $5 million for property tax relief in 2008 based on less than one month of operations.
Supply of Riverboat Gaming
The riverboat gaming law authorized eleven casino licenses. The law established the Indiana Gaming Commission to approve license applicants, to regulate the gaming operations of each licensee, and to license and regulate the occupations and suppliers serving the riverboat casinos.
The 1993 riverboat gaming law as originally enacted required five riverboat casinos to operate on Lake Michigan, five to operate on the Ohio River, and one to operate on Patoka Lake in southern Indiana. The law also required that voters had to approve casino gaming at a referendum before a casino could be licensed to operate in their county or city.
Casino Aztar, located in Evansville, was the first casino to begin operating in December 1995. While the Lake Michigan and Ohio River licenses were filed and operating by 2000, the Patoka Lake license was never utilized because the Army Corps of Engineers would not allow a casino to operate on the lake. As a result, the statutory authority for the Patoka Lake license was repealed in 2003. In its place, the legislature authorized a casino to operate in a special historic district in French Lick. The French Lick casino opened in November 2006 and represents the eleventh and last riverboat casino to open under the current riverboat gaming law. Table 1 lists the state's riverboat casinos by location and opening date.
Table 1: Indiana Casino Locations and Opening Dates, 1995 to 2006
| Current Casino Name | City, County | Opening Date at Location |
| Casino Aztar | Evansville, Vanderburgh | 12/8/95 |
| Majestic Star Casino I | Gary, Lake | 6/11/96 |
| Majestic Star Casino II1 | Gary, Lake | 6/11/96 |
| Horseshoe Casino—Hammond2 | Hammond, Lake | 6/29/96 |
| Grand Victoria Casino | Rising Sun, Ohio | 10/4/96 |
| Argosy Casino | Lawrenceburg, Dearborn | 12/13/96 |
| Ameristar Casino East Chicago3 | East Chicago, Lake | 4/18/97 |
| Blue Chip Casino | Michigan City, LaPorte | 8/22/97 |
| Horseshoe Casino—Southern Indiana4 | Elizabeth, Harrison | 11/20/98 |
| Belterra Casino | Vevey, Switzerland | 10/27/00 |
| French Lick Casino | French Lick, Orange | 11/1/06 |
1. Formerly the Trump Casino
2. Formerly the Empress Casino
3. Formerly the Resorts East Chicago, the Harrahs Casino and the Showboat Casino
4. Formerly Caesars Casino
Source: Indiana Gaming Commission
In December 1995, Casino Aztar opened with 1,267 electronic gaming devices (EGDs) and 70 table games. Since that first riverboat casino, ten more casinos have opened, supplying almost 17,000 additional EGDs and almost 600 additional table games. However, nearly all of this supply growth occurred between 1996 and 2001, with the opening of the Lake Michigan and Ohio River casinos. Belterra Casino, the tenth riverboat casino to open, began operating in October 2000 and registered its first full fiscal year of operations in 2002. Since 2002, however, the supply of EGDs and table games statewide has remained relatively unchanged (see Figure 1). From 2002 to 2008, only one new riverboat casino (the French Lick Casino) opened and only one major expansion was completed when a new and larger facility was opened in 2006 by Blue Chip Casino in Michigan City.
Figure 1: Casino Games in Indiana—Indexed to 1996, 1996 to 2008
The number of EGDs supplied by casinos in Indiana increased by an average of 6.7 percent per year from 1997 (the first full fiscal year of casino gaming) to 2008. During that time, the number of table games supplied at casinos increased by about 3.2 percent annually. However, Figure 1 highlights the two distinct periods of supply growth. While the supply of EGDs grew by an average of 13.5 percent per year from 1997 to 2002, EGD supply has increased by only about 0.9 percent per year since 2003. Table games show a similar change in annual supply, growing by about 7.2 percent annually through 2002, but growing by only 0.1 percent per year since 2003. Most of the post-2002 growth is attributable to the French Lick Casino opening, which added roughly 1,200 EGDs and 45 table games to the state totals beginning in 2007. To a much lesser extent, the Blue Chip expansion had an impact on the state EGD totals by adding about 450 EGDs. Excluding French Lick, the supply of EGDs and table games has actually declined slightly since 2003, showing average declines of about 0.5 percent and 1.1 percent per year, respectively.
Riverboat Casino Taxes
The riverboat gaming law imposes two excise taxes on the casino owners. The riverboat admission tax generated $729.8 million in 2008 and the admission tax generated $81.2 million for state programs and local government units. The state share of the two riverboat casino taxes totaled about $616.1 million, with about $486.3 million being directed to property tax relief. The two casino taxes have become the fifth largest source of revenue to the state following the sales tax, the individual income tax, the motor fuel tax, and the corporate income tax. Moreover, since 1996, the riverboat casinos have paid about $5.9 billion in wagering taxes and about $1.1 billion in admission taxes.
The imposition of the taxes for admission and wagering depends on whether the casino owner chooses to conduct gaming excursions or dockside gaming. The riverboat gaming law imposes a number of regulatory restrictions and requirements on the riverboat casinos. Unlike neighboring states with riverboat gaming, Indiana did not impose regulatory restrictions such as betting limits, loss limits, or gaming machine or position limits. Like other states, Indiana did impose an excursion requirement on the riverboat casinos. Under the excursion requirement, the riverboat casinos had to leave the dock and cruise while gaming was conducted on-board except when water or weather conditions posed a danger for conducting the gaming excursions. The law provides for a maximum excursion length of four hours but, as a practice, the casinos tended to operate two-hour excursion schedules. Dockside gaming was authorized in June 2002 to enable the riverboat casinos to more fully utilize their existing capacity and tap their respective geographic markets. The dockside gaming regime permits a riverboat casino to remain permanently moored at the dock, allowing continuous ingress and egress of gamblers to and from the casinos. While dockside gaming was implemented by all the riverboat casinos in August 2002, the riverboat casinos are still permitted under the current law to conduct gaming excursions if ownership so chooses.
Riverboat Admission Tax
Under the gaming excursion regime, the admission tax is $3 per patron admitted to a gaming excursion. Thus, for every gaming excursion (depending on the excursion schedule of the casino), the casino owner pays the $3 admission tax for each player on board the riverboat casino. The admissions comprise: (1) the turnstile count reflecting when patrons initially enter the casino and embark on an excursion; and (2) additional or multiple excursions reflecting patrons who have stayed on the riverboat for an additional gaming excursion.
The tax regime for riverboat casinos that conduct dockside gaming is markedly different. While the casino owner continues to pay the $3 admission tax, the tax is paid on a different tax base. The tax base for dockside casinos is only the turnstile count or the number of patrons entering the riverboat casino. Figure 2 shows annual admission tax totals and the amounts distributed to state and local government. Local government entities (cities, counties, and county convention bureaus) where the riverboat casinos are docked receive 70 percent of the admission tax revenue. The remaining 30 percent of the admission tax is distributed to the state for mental health programs, horse racing industry initiatives, and the state fair.
Figure 2: Annual Admission Tax Totals and Amounts Distributed to State and Local Government, 1996 to 2008
Admission tax collections declined significantly after 2002 when all of the riverboat casinos switched from the excursion gaming to the dockside gaming regime, resulting in an estimated permanent reduction of roughly 38 percent in the yield of the admission tax. This drop occurred because about 52 percent of the admission tax base under the excursion gaming regime was comprised of players admitted to multiple excursions. However, the base shrinkage was mitigated somewhat by the 20 percent to 30 percent increase in the number of patrons entering the casinos (represented by the turnstile count) due to dockside gaming. With the expected decline in admission tax collections, the dockside gaming legislation guaranteed that each entity receiving admission tax revenue would continue to receive its 2002 yield. Thus, the state programs and local units continue to receive the admission tax collected throughout the fiscal year, but each program and local unit also receives a transfer payment from the state to make-up the fiscal year shortage in collections. The guarantee payment for a fiscal year is made during the following fiscal year from the state's share of wagering tax revenue.3 The black and gray bars first appearing during 2004 in Figure 2 describe the state and local guarantee payments.
The French Lick Casino admission tax is higher and distributed differently. The tax is $4 per patron based on the turnstile count at that venue and there is no guarantee payment for entities receiving this revenue since the casino was authorized and opened after the dockside legislation was enacted. Thirty-eight percent of the admission tax revenue from the French Lick Casino is distributed to the state for economic development initiatives in that region and for preservation of the West Baden Springs Hotel. The remainder is split between local units in Orange County, Crawford County, and Dubois County.
Beyond the downward shift in admission tax collections wrought by dockside gaming, the yield from the tax rose only nominally after dockside gaming was implemented. From 2004 to 2007, the admission tax distributions shown in Figure 2 grew by an annual average of only 1.4 percent. More importantly, distributions declined uncharacteristically in 2008 by about 2.8 percent, even with a full year of collections from the French Lick Casino and its $4 admission tax. Admission tax yields were down at nine of eleven casinos in 2008, with six casinos registering year-over-year declines averaging 2.6 percent. More notable were the declines registered at Blue Chip Casino (down 25.7 percent), Casino Aztar (down 14.5 percent), and Caesars (down 10.6 percent). The Blue Chip decline is a direct result of stiff competition from a new tribal casino that opened at the beginning of August 2007 only ten to fifteen miles away in New Buffalo, Michigan. Similarly, some of the decline at Casino Aztar and Caesars could be attributable to the same phenomenon, as customers living closer to French Lick shift their play from Casino Aztar and Caesars to the French Lick Casino.
Riverboat Wagering Tax
Before July 2002, the riverboat casinos paid a flat rate wagering tax equal to 20 percent of the casino win. This rate increased to 22.5 percent in July 2002 and remains the wagering tax rate imposed on riverboat casinos that conduct gaming excursions. The dockside gaming regime, which all of the riverboat casinos switched to in August 2002, requires the casino owner to pay the wagering tax on a graduated rate schedule in lieu of the flat rate tax. The current graduated rate schedule is specified in Figure 3.
Figure 3: Graduated Rate Schedule for Wagering Taxes, 2008
Indiana State Tax On Gambling Winnings Rate
The rate schedule implemented in 2002 had five tax brackets and topped out at 35 percent of the annual win generated by a casino exceeding $150 million. The 40 percent tax bracket was added by 2007 legislation. Figure 4 shows annual wagering tax totals and the amounts distributed to state and local government.
Figure 4: Annual Wagering Tax Totals and the Amounts Distributed to State and Local Government, 1996 to 2008
Until 2003, 25 percent of the wagering tax was distributed to the city or county where the casino was docked, with the balance going to the state. The state's share was used for capital projects and to replace local motor vehicle excise taxes. However, the combination of expanding the wagering tax base via dockside gaming and increasing the wagering tax rate resulted in a substantial permanent increase in wagering tax revenue. These revenue effects are discernible beginning in 2003, when the amount of wagering tax distributed jumped from $381.5 million to $561.1 million. It's estimated that dockside gaming led to a 12 percent to 13 percent average increase in the casino win, while the wagering tax rate was, on average, increased by about 40 percent. Together, these two changes increased collections during 2003 by about 55 percent, with 2004 collections about 73 percent higher than the 2002 collection total.4 Since these revenue effects were anticipated, the dockside gaming legislation capped the local wagering tax shares at the amount each local government unit received in 2002. This ensured that the additional yield from the wagering tax due to the base expansion and the rate increase would accrue to the state. The legislation also limited the annual amount of state revenue going to capital projects and local motor vehicle excise tax replacement. A new revenue sharing program was established for non-gaming communities and a new and sizeable distribution was created for state property tax relief programs.
Similar to recent admission tax trends, the wagering tax has shown nominal growth since the upward shift in 2003 and 2004 caused by dockside gaming and the concurrent wagering tax increase. In particular, from 2004 to 2007, the annual wagering tax distributions grew by only 1.4 percent per year. It's important to note that the distribution in 2004 is abnormally high because the monthly distribution schedule for the wagering tax was accelerated. Prior to this time, there was a one-month lag in distributions, with the wagering tax collected in one month being distributed to state and local accounts the following month. The 2004 change involved distributing revenue in the same month that it is collected, resulting in thirteen months of wagering tax collections being distributed to state and local accounts during 2004 and the 'drop' in 2005. From 2005 to 2007, revenue trended upward again—with the French Lick Casino helping to generate fairly robust growth of about 6 percent in 2007. French Lick contributed about $13 million to the total in 2007 and about $24 million in 2008. Like the admission tax though, 2008 wagering tax distributions experienced a significant decline of about 4.5 percent despite a full year of collections from the French Lick Casino. The 2008 wagering tax yields were down at eight of the eleven casinos, with five casinos averaging a decline of about 4.8 percent. What's more, the decline in wagering tax collections was quite severe at Blue Chip Casino (down 31.8 percent) and Casino Aztar (down 13.3 percent), and less so at Caesars (down 5.6 percent). Osiris casino no deposit code.
As to the state share of the wagering tax, it increased from a fixed 75 percent share each year to over 83 percent in 2003 and has hovered above 80 percent since. Part of the increase in 2003 was attributable to the revenue sharing program being delayed for one year and the revenue sharing distribution being redirected to the state general fund. This impact is shown by the bulge in other state distributions in 2003. Nevertheless, the increased state share is also attributable to the cap placed on local distributions. Through 2007, the state share of the wagering tax yield increased steadily to almost 83 percent of the total, but then declined to about 81 percent in 2008 when wagering tax revenue registered an annual decline. The property tax relief distribution reflects the net amount of wagering tax going to property tax relief after subtraction of the admission tax guarantee payments (see Figure 2). Wagering tax revenue directed to property tax relief rose rapidly from $294.7 million in 2003 to $464 million in 2004. From that point, the amount has been relatively stable, but registered a decline of about 6 percent from $486.3 million in 2007 to $457.3 million in 2008. While the French Lick Casino pays according to the graduated wagering tax schedule, the revenue is distributed differently than wagering tax revenue from the other riverboat casinos. A total of 56.5 percent of the revenue is directed to the state, with two-thirds going to property tax relief and the balance going to preservation of the West Baden Springs Hotel. The remainder is split between local units in Orange County.
Conclusion
The riverboat casino businesses have paid a total of about $5.9 billion in riverboat wagering tax and about $1.1 billion in riverboat admission tax since 1996. In 2008 alone, the wagering tax distribution to state and local government in Indiana totaled $729.8 million, with the distribution of riverboat admission taxes of $81.2 million. While both taxes experienced radical growth from 1996 through 2004, revenue growth from 2004 to 2007 was nominal at best. Moreover, admission tax and wagering tax distributions experienced marked declines of 4.5 percent and 2.8 percent, respectively, in 2008. These recent revenue patterns are certainly grist for additional research as to the adequacy and future growth potential of both casino taxes. Nonetheless, given the sizeable amount of riverboat wagering tax that is being directed to property tax relief, it is essential that the growth potential of this tax be assessed. This research should: (1) evaluate the long-run growth potential of the wagering tax and derive estimates of this expected growth rate; and (2) evaluate the extent to which the wagering tax is subject to short-run economic shocks—most importantly, the rate at which the wagering tax may decline during periods of economic downturn. Also, since Kentucky and Ohio, which represent significant market areas for Indiana casinos, continue to consider the option of casino gaming, it is equally as important to evaluate the potential impact of competition from casinos in these states on the revenue-generating capacity of Indiana casinos.
Notes
- For instance, in State v. Nixon (1979), 270 Ind. 192, 384 N.E.2d 152, the Indiana Supreme Court held that pari-mutuel wagering on horse races was unconstitutional under the lottery prohibition in Article 15, Section 8.
- References the state fiscal year which begins on July 1st and ends on June 30th of the year denoted.
- The guarantee payment for the 2003 shortage was made in 2004. This is why there is no guarantee payment recorded for 2003.
- Up until 2004, distributions lagged collections by one month. Thus, fiscal distributions and collections totals could vary significantly. The percentage increases reported are based on collections during the fiscal year and may vary somewhat from the changes in distributions. The 2004 distributions included thirteen months of collections because the distribution schedule was changed to distributing a month's collections at the end of the month rather than during the following month.
Racetrack Casinos Sidebar
The legislature legalized gaming on electronic gaming devices (EGDs) at Indiana's two pari-mutuel horse racetracks in May 2007. The slot machine gaming law provides for only two such gaming facilities, one located at Hoosier Park in Anderson and one at Indiana Downs in Shelbyville. The law limits each facility to 2,000 EGDs and does not allow the facilities to operate table games. Both of the racetrack gaming facilities commenced operation in June 2008.
The slot machine gaming law imposes an initial license fee on the facility owners, a continuing annual license fee after the first five years of operation, state and county wagering taxes, and a funding requirement for certain horse racing purposes. The law requires each racetrack owner to pay an initial license fee of $250 million to the state. The license fee was payable in two installments, with $150 million due before November 1, 2007, and the balance due before November 1, 2008. The revenue from the initial license fee has been directed to property tax relief in 2007 and 2008. After the first five years of operation, the facility owner must pay an annual license fee equal to $100 per EGD operated during the year. The revenue from this annual license will also be directed to property tax relief.
The slot machine gaming law also established three wagering taxes to be paid on the win generated by the EGDs at the racetrack facilities. However, the law does not require payment of an admission tax. The state wagering tax is imposed on the graduated rate structure specified in the graphic below. All revenue from this tax is dedicated to property tax relief.
Graduated Wagering Tax Structure for Racetrack Slot Machines
The racetrack facilities began operations during the last month of Fiscal Year 2008, with the Hoosier Park Casino opening on June 1 and the Indiana Live Casino at Indiana Downs opening on June 9. The two facilities combined to generate approximately $28.9 million in win during June, with the wagering tax liability totaling about $6.5 million.
Two other wagering taxes are imposed by the slot machine gaming law. A county wagering tax is imposed at the rate of 3 percent of the win generated at each facility, with the annual tax liability for each limited to $8 million. The revenue collected from each facility is distributed to local governments within Madison County and Shelby County where the facilities are located. A third wagering tax is imposed at the rate of 1 percent of the win generated at each facility, with the revenue from this tax being distributed as a subsidy to the French Lick Casino. The tax revenue generated from the June 2008 win was about $195,000 for the county wagering tax, and about $65,000 for the supplemental wagering tax.
Also in this Issue…
So you’ve won a jackpot on the slots or defied the odds on a sports bet in Indiana. Other than bragging on social media, one of the next things you have to do is give the federal and state governments their cut.
Winnings from all forms of gambling are taxable income, including winnings from:
- Lottery
- Slots
- Table games
- Sports betting
- Horse racing
Even if you put money down and win an organized Rock-Paper-Scissors competition, you have to pay taxes on the winnings. Even non-cash prizes like merchandise have to be reported on your federal and state income tax returns.
The idea that the Internal Revenue Service and the Indiana Department of Revenue won’t know is folly. The parties which pay out the prizes, whether that be casinos, sportsbooks, whatever, keep receipts and report them.
How much are my gambling winnings taxed in Indiana?
Effective for tax years after 2017, the federal rate on winnings over $5,000 is 24%. Winnings under that benchmark of $5,000 must also be reported depending on their amounts and sources.
Currently, Indiana’s personal income tax rate is 3.23%. Almost all gambling winnings are subject to this tax.
Casinos typically withhold 25% of your winnings for tax purposes. That is only the norm if you provide them with your social security number, however. If you decline that option, they usually withhold 28%.
How to determine if your winnings are taxable income
Another service the casinos usually provide for mutual benefit is sending you the appropriate paperwork. Fortunately, Indiana allows you to fill out the same form for both purposes.
Form W-2G, Certain Gambling Winnings reports your winnings for the year to both the IRS and you, in case you haven’t been keeping track.
The amount on this form will include any winnings from the year which qualify for federal taxes. That total will consist of:
- Your winnings (not reduced by the wager) of at least $1,200 from a bingo game or slot machine
- The winnings (reduced by the wager) of at least $1,500 from a keno game
- Your winnings (reduced by the wager or buy-in) of at least $5,000 from a poker tournament
- The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are $600 or more, and at least 300 times the amount of the bet
- Your winnings that are subject to federal income tax withholding (either regular gambling withholding or backup withholding)
How to report your gambling winnings to the IRS
The IRS requires you to report the total of your all qualifying gambling winnings for the year on a Form 1040. If you get the W-2G from the payers of your winnings, it’s a simple process of adding up those winnings and the amount of tax they withheld and then transferring those totals onto the 1040.
Add up all the numbers from Box 1 on the W-2G forms and separately, calculate the sum of all the numbers from Box 2. Place the Box 1 total on line 21 of the 1040 and place the Box 2 sum on the line designated as federal income tax withheld.
Even if the game operator didn’t do its job and you didn’t receive a W-2G, that doesn’t mean you’re off the hook.
You are still required to report all your gambling winnings from the year on the form 1040. To do that, fill out Schedule 1 with your gambling winnings as “Other Income.” Attach that to Form 1040 and include it in your personal income tax return.
So what if you weren’t flying solo, but pooled your resources together with others to maximize your chances of winning it big? That doesn’t change much.
Paying taxes on a shared prize
The IRS is prepared for this scenario. Form 5754is your go-to.
This is the form to use when you receive gambling winnings, not in your name on a W-2G. This form is also appropriate when you’re part of a group of two or more people sharing winnings.
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The important thing to remember is that Form 5754 should not be included in your income tax return. Fill it out and give it to the person who received the W-2G.
Keep a copy for your records. The person who received the initial W-2G should submit all the appropriate 5754s back to the casino so they can correctly record the transaction.
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The casino will then send each person their own W-2G. From there, the process is identical to how you would report any individual winnings.
How to report your gambling winnings to Indiana
As previously stated, Indiana is a state that allows you to use Form W-2G for your state income tax return as well. To do so, transfer the amount from Line 7 of your Federal 1040 to Line 1 of your IT-40.
If all or part of your winnings came while you were outside of the Hoosier State, you still must report them. That includes winnings from multistate lotteries. Report them just as you would if they came from an in-state game.
There is one legal way to reduce your tax liability from gambling winnings. It only applies if you opt to itemize your deductions, however.
Indiana and IRS gambling deductions for taxes
The IRS does allow a deduction for gambling losses. It cannot be claimed if you take the standard deduction on your return, however.
Tax Rate On Gambling Winnings
For those who itemize, gambling losses go on Line 28 of Schedule A, Form 1040. You cannot claim a deduction larger than your reported winnings.
And just because you deposit more than you withdraw from your bank account is not necessarily sufficient evidence. You must prove your losses.
You also cannot deduct expenses incurred along the way. The cost of your hotel and meals are just part of the necessary out-of-pocket expense.
If you opt to itemize and claim gambling losses, you’re better off keeping the following for your records:
- The date and type of each wager
- Where you placed the bet, i.e., the name of the casino
- How much you won or lost
- Wagering tickets
- Canceled checks
- Credit card records
Casinos can make this easy for you as well. If you’re part of their rewards programs, getting an annual summary of your gambling losses is quite simple.
The same goes for any winnings from the latest gambling option, legal sports betting in Indiana.
Taxes on sports betting winnings
With legal sports betting new to Indiana, there are plenty of people betting on college football and the NFL. Your parlay on Notre Dame football or Purdue football games is also taxable income if it exceeds $600. It doesn’t matter whether you placed your wager at an Indiana online sportsbook, inside a casino, on a kiosk at an off-track betting site or on your phone from your couch.
Just like other types of gaming operators, the book you placed your bet with should send you a W-2G. You can use that to report your winnings and withholdings to both Indiana and the IRS.
The positive side of that is just like any other gambling losses; the money you lose betting on sports can be deductible if you choose to itemize. Just as with any other deductions you claim, keeping detailed records is essential.
With any money that is deemed income by the IRS, it’s important to know what your specific tax bracket is to avoid underpayment. The highest federal tax rate is currently 35%, and that’s in addition to the 3.23% you would owe the state on your sports betting winnings.
As most operators only withhold 25% of winnings automatically, you may owe additional federal tax above and beyond what the operator withheld based on your personal income. That amount would be due upon filing.
That applies equally to those who play casino games in person and online in the Hoosier State.
Taxes on online casino games and online poker
While online poker and online casinos have yet to be legalized, when they do, taxes will work the same as they do at land-based casinos.
The operators of the games should send you a W-2G summing up all your winnings from the year once they reach certain thresholds depending on the type of game. Those are:
- Your winnings (not reduced by the wager) of at least $1,200 from a bingo game or slot machine
- The winnings (reduced by the wager) of at least $1,500 from a keno game
- Your winnings (reduced by the wager or buy-in) of at least $5,000 from a poker tournament
- The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are $600 or more, and at least 300 times the amount of the bet
- Your winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding)
With the W-2G in hand, you have what you need to report your winnings and pay any applicable taxes to both the state of Indiana and the IRS. Let’s review all the pertinent information that is relevant regardless of where your winnings came from:
- The gaming operator you placed your wagers with should send you a W-2G
- You can use the W-2G to report your winnings on both your federal and state taxes
- How much federal tax you pay depends on your personal income
- The Indiana rate is 3.23%
- If you don’t get a W-2G, you still have to claim your winnings as income if they qualify
- You can deduct your losses on your federal return, but you must itemize
- If you do go that route, keep any and all records from the transactions
With those simple things in mind, you too can stay safe from tax fraud while gaming in Indiana. Enjoy the games!