Do Gambling Winnings Affect Social Security?
Discover how gambling winnings are treated by Social Security. The impact varies based on the type of benefit you receive, affecting tax liability and eligibility.
Whether a lucky day at the casino or a winning lottery ticket could affect Social Security payments depends on the type of benefit being received. For some, a windfall will have no impact on their monthly check, while for others, it could reduce or even eliminate their benefits. The rules for retirement and disability insurance are vastly different from those for needs-based assistance programs.
Impact on Social Security Retirement and Disability Benefits
Social Security retirement and disability benefits, including Social Security Disability Insurance (SSDI), are calculated based on an individual’s lifetime earnings history. The Social Security Administration (SSA) determines benefit amounts by looking at the 35 highest-earning years of a person’s career. The factor in this calculation is “earned income,” which consists of wages from a job or net earnings from self-employment.
Gambling winnings fall into a different category. The SSA and the Internal Revenue Service (IRS) classify money from lotteries, casinos, or sports betting as “unearned income.” Because these winnings are not earned through work or self-employment, they do not count toward your earnings record and have no direct impact on your monthly Social Security retirement or SSDI check.
Taxation of Social Security Benefits
The primary way gambling winnings affect Social Security is through federal income taxes, which can cause a portion of your benefits to become taxable. The IRS uses “combined income” to determine if you owe taxes on your benefits. This figure is not found on any single form and must be calculated.
The formula for combined income is your Adjusted Gross Income (AGI), plus any nontaxable interest, plus 50% of your Social Security benefits for the year. Gambling winnings are included in your AGI, and you must report the full amount of your winnings as income, not your net winnings after losses. A significant win can push your combined income over certain IRS thresholds.
For a single filer, if your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, up to 85% of your benefits may be taxable. For those married filing jointly, the 50% threshold starts at a combined income of $32,000, and the 85% threshold begins at $44,000.
Consider a single individual receiving $18,000 in Social Security benefits and having $10,000 in other retirement income. Their combined income would be $19,000 ($10,000 AGI + $9,000, which is 50% of their benefits), falling below the taxable threshold. If that person wins $15,000 at a casino, their AGI jumps to $25,000, and their new combined income becomes $34,000 ($25,000 AGI + $9,000), placing them in the 50% taxable category.
Effect on Supplemental Security Income (SSI)
The rules for Supplemental Security Income (SSI) are much stricter. Unlike retirement and disability, SSI is a needs-based program for individuals with very limited income and resources, and it is not based on a prior work history. Any change in financial status can directly impact eligibility and payment amounts.
For SSI, gambling winnings are unearned income that can reduce your monthly payment or make you ineligible. After a $20 income exclusion, the SSA reduces your benefit dollar-for-dollar by the amount of your countable unearned income.
A significant gambling win will almost certainly make an individual ineligible for SSI for the month it is received. Any portion of the winnings that is not spent within the calendar month it is received becomes a “resource” in the following month. SSI has strict resource limits—$2,000 for an individual and $3,000 for a couple—and if the leftover winnings push your total resources above these limits, you will remain ineligible for SSI until your resources are spent down below the threshold.
Reporting Gambling Winnings
Reporting requirements for gambling winnings depend on the benefits you receive. All taxpayers must report all gambling winnings to the IRS as taxable income, even if they do not receive a Form W-2G, “Certain Gambling Winnings.” Payers are required to issue a W-2G if you win $1,200 or more from bingo or slot machines, or more than $5,000 from a poker tournament.
The responsibility to report to the Social Security Administration applies only to SSI recipients. If you receive SSI, you are required to report any change in your income, including any gambling winnings. This report must be made to the SSA by the 10th day of the month following the month you received the money.
This reporting can be done by phone, mail, or through an online “my Social Security” account. Failing to report winnings in a timely manner can result in penalties and an overpayment situation, where the SSA will demand you pay back benefits you received while you were technically ineligible. For those receiving only retirement or SSDI benefits, there is no requirement to report gambling winnings to the SSA, as it does not affect their benefit amount.