Maryland Gambling Taxes on Winnings and Losses

Gambling winnings are considered taxable income in Maryland, mirroring federal tax laws. This applies to all forms of gambling, including proceeds from the state lottery, casino games, sports wagering, and horse racing. The tax implications involve identifying taxable amounts, accounting for automatic withholding, reporting the income on your annual return, and understanding the rules for deductions and non-residents.

Identifying Taxable Gambling Winnings in Maryland

All gambling winnings are taxable in Maryland and must be reported as income. This includes money from sources like Maryland Lottery games, casino slot machines and table games, horse racing, and sports betting. There is no minimum amount that makes winnings taxable, as even small wins are considered income.

Federal reporting thresholds can cause confusion. A payer must issue a Form W-2G to a winner for winnings of $600 or more if the amount is at least 300 times the wager, $1,200 or more from bingo or slot machines, and $5,000 or more from a poker tournament. These are reporting thresholds for the payer, not a determination of when your income becomes taxable. All winnings must be reported, regardless of whether a Form W-2G is issued.

Maryland Tax Withholding on Winnings

When winnings exceed $5,000, the payer is required to automatically withhold taxes. The state withholding rate for a Maryland resident is 8.75 percent, while the rate for a non-resident is 8 percent. This is in addition to the standard 24% federal withholding on gambling winnings over the $5,000 threshold.

After withholding, the payer provides the winner with a federal Form W-2G, “Certain Gambling Winnings.” This document details the gross amount of the winnings and the amount of federal and Maryland state income tax withheld. The form serves as a record for the taxpayer, showing that a portion of the tax liability has already been paid.

Calculating and Reporting Taxes on Your Maryland Return

Gambling winnings are taxed as ordinary income and are subject to both the state income tax and the local or “piggyback” tax. Maryland’s state income tax rates are progressive, ranging from 2% to 5.75%, depending on your total taxable income. The local income tax rate varies by county, so you must use the rate for your specific jurisdiction.

This income is reported on the Maryland Resident Income Tax Return, Form 502. The total gambling winnings for the year are included in your Maryland adjusted gross income. If you received a Form W-2G, the state tax withheld shown on the form is claimed as a credit for taxes already paid. You must report all winnings to ensure compliance and avoid potential penalties.

For winnings over $500 where no taxes were withheld, Maryland requires an estimated tax payment. This payment must be submitted within 60 days of receiving the prize money using Form PV, a payment voucher for estimated tax. Failure to make this payment on time can result in penalties, and the amount paid is claimed as a credit on the annual Form 502.

Deducting Gambling Losses

Taxpayers can deduct gambling losses, but with a strict limitation: you can only deduct losses up to the total amount of your reported gambling winnings for the same tax year. For instance, if you won $4,000 but lost $6,000, your deduction is limited to $4,000. You cannot use the remaining net losses to reduce other income sources like wages or investments.

To claim these deductions on a Maryland tax return, you must itemize deductions on your federal return using Schedule A (Form 1040). Maryland’s tax laws do not permit a separate state-level itemization; the state deduction is tied to the federal one. Because the federal standard deduction is high, fewer taxpayers itemize, which means many cannot deduct their gambling losses. If you itemize, you must maintain records like wagering tickets and receipts to substantiate any claimed losses.

Tax Rules for Non-Maryland Residents

Non-residents who win money from gambling activities in Maryland are subject to the state’s income tax on those winnings. This applies to winnings from Maryland-based casinos, the state lottery, or horse racing tracks. Payers are required to withhold state taxes on winnings over $5,000 at a rate of 8 percent for non-residents.

To comply, non-residents must file a Maryland Non-Resident Income Tax Return, Form 505. On this form, they report the gambling income earned in Maryland and calculate the associated state and special non-resident tax.

To prevent double taxation, a non-resident’s home state will offer a tax credit for the income taxes paid to Maryland. This allows the taxpayer to reduce the tax liability in their state of residence by the amount paid to Maryland. You must attach copies of the Form W-2G showing Maryland withholding to your Form 505.