Are Gambling Winnings Taxable in California?

A win from any of California’s gambling avenues brings immediate questions about tax responsibilities. Many who enjoy casinos, card rooms, or lotteries are unsure how winnings are treated by tax authorities. The rules governing this income begin at the federal level before being addressed by the state.

Federal Taxation on Gambling Income

The Internal Revenue Service (IRS) considers all gambling winnings to be taxable income. This applies to every dollar won and includes the fair market value of any non-cash prizes, such as vehicles or vacation packages, in addition to cash from lotteries or casino games.

Payers of gambling winnings must issue a Form W-2G, “Certain Gambling Winnings,” when specific thresholds are met. You can expect to receive this form for:

• Winnings of $1,200 or more from bingo or a slot machine
• Winnings of over $5,000 from a poker tournament
• Winnings of $1,500 or more from keno
• Prizes of $600 or more that are at least 300 times the amount of your wager

If your winnings surpass $5,000, the payer is generally required to withhold 24% for federal income tax before you receive your payout.

California State Taxation on Gambling Income

California’s tax system conforms to the federal definition of income, meaning if the IRS considers your gambling winnings taxable, California does as well. All winnings from sources like casinos, horse races, and card rooms are subject to California’s graduated income tax rates.

For California residents, this means all gambling winnings, regardless of where they were won, are taxable by the state. An exception is for winnings from the California State Lottery, including multi-state games like Powerball and Mega Millions, which are not subject to state tax. Winnings from other states’ lotteries remain taxable for California residents.

Non-residents must also pay California income tax, but only on winnings sourced from within California. A tourist who wins a jackpot at a California casino is required to report that income to California and pay the corresponding state tax.

Calculating and Documenting Net Winnings

The IRS allows gamblers to deduct their losses, but with a limitation: you can only deduct losses up to the total amount of winnings you report for the same year. If your losses exceed your winnings, you cannot use the net loss to reduce other taxable income, such as wages. The winnings and losses must be reported separately; you cannot simply report the net difference.

To substantiate any claimed losses, you must keep a detailed log of your gambling activity. This log should include:

• The date of each session
• The name and address of the gambling establishment
• The specific types of wagers placed
• The amounts won and lost

Retaining supporting documents is also important, including Form W-2G, wagering tickets, canceled checks, and bank statements.

How to Report on Your Tax Returns

For your federal return, all gambling winnings must be reported on Schedule 1 of Form 1040 as “Other Income.” This is required even if you did not receive a Form W-2G from the payer. If you choose to deduct your losses, you must itemize your deductions on Schedule A. This means you cannot claim the standard deduction and also deduct your gambling losses.

The information from your federal return carries over to your California state return. The federal Adjusted Gross Income (AGI), which includes your gambling winnings, is the starting point for calculating your California taxable income on Form 540. To claim your gambling losses at the state level, you must also itemize your deductions on your California return.