What Happens If You Don’t Report Gambling Winnings?

All gambling winnings are considered taxable income by the Internal Revenue Service and must be reported on your tax return. This includes cash from lotteries, raffles, and casinos, as well as the fair market value of non-cash prizes like cars or vacations. The requirement to report this income applies regardless of the amount won or if you had a net loss from gambling for the year. Failing to include these winnings on your tax return can lead to enforcement actions and financial repercussions from the IRS.

How the IRS Identifies Unreported Winnings

The primary method the IRS uses to track gambling income is through Form W-2G, “Certain Gambling Winnings.” A payer, such as a casino or state lottery agency, is required to issue this form when your winnings meet specific thresholds. These triggers include:

• Winnings of $1,200 or more from a slot machine or bingo game.
• Winnings of $1,500 or more from keno.
• Winnings of over $5,000 from a poker tournament.
• Winnings of $600 or more from other gambling types, if the payout is at least 300 times your wager.

When a payer issues a Form W-2G to you, they simultaneously file a copy with the IRS. The agency’s automated systems then compare this information against the income reported on your tax return. If the winnings on the W-2G do not appear on your return, it automatically flags your account for review.

Even if you do not receive a Form W-2G, the IRS has other ways to detect unreported income. During an audit, an agent may perform a bank deposit analysis to find large, unexplained cash deposits that do not align with your reported income. Financial institutions and casinos are also required to file a Currency Transaction Report (CTR) for any cash transaction exceeding $10,000 in a single day, providing another potential data point for IRS investigators.

IRS Actions and Financial Penalties

When the IRS identifies a discrepancy between their records and your tax return, such as a missing Form W-2G, the process typically begins with an automated notice. The most common notice for this situation is the CP2000, which is a proposal of changes to your tax liability. The notice will detail the unreported income the IRS has on file, calculate the additional tax owed, and propose penalties and interest. You will have a specific timeframe, usually 30 days, to respond by either agreeing with the changes or providing documentation to dispute them.

Failing to report income accurately can lead to financial penalties. If the unreported winnings result in a substantial understatement of tax, the IRS can impose an accuracy-related penalty of 20% of the underpayment. A failure-to-pay penalty may also apply, which accrues at a rate of 0.5% per month on the unpaid tax amount, capped at 25% of the total.

Interest is another financial consequence, and it is compounded daily on the entire outstanding balance. This includes the original unpaid tax as well as the penalties that have been assessed. The interest rate is determined quarterly and is set at the federal short-term rate plus three percentage points. This combination can cause the total amount owed to grow larger than the initial tax liability.

If you ignore the CP2000 notice or cannot resolve the issue through correspondence, the IRS may initiate a formal audit of your return. While most cases of simple omission are handled civilly, willful tax evasion—a deliberate attempt to defraud the IRS—can lead to criminal investigation and prosecution. This is reserved for the most serious cases and is distinct from an unintentional error.

Amending a Tax Return to Report Winnings

To voluntarily correct an omission and report previously undeclared gambling winnings, you must file an amended tax return. Before starting, gather all necessary documentation, including a copy of your original tax return, any Forms W-2G you received, and detailed records of your gambling activities. It is beneficial to have a log of your wins and losses, as you can deduct gambling losses up to the amount of your winnings if you itemize deductions.

The correction is made using Form 1040-X, “Amended U.S. Individual Income Tax Return.” This form modifies your previously filed return. On Form 1040-X, you will show the original amounts, the changes you are making, and the corrected amounts. You must also provide a written explanation for the changes, such as stating that you are reporting gambling income that was inadvertently omitted.

Once Form 1040-X is complete, you must file it. You should attach any new or corrected forms and schedules, such as a Schedule 1 to report the gambling income and a Schedule A if you are now itemizing to deduct losses. After filing, the IRS will process the amendment, which can take several months. You will then receive a notice billing you for the additional tax, plus any applicable penalties and interest.

State Tax Obligations for Gambling Income

Beyond federal requirements, the vast majority of states with an income tax also classify gambling winnings as taxable income. This means you may have a separate reporting obligation on your state tax return. The rules and tax rates for gambling income can differ significantly from one state to another. Some states may have different reporting thresholds or may not allow for the same deductions as the IRS, such as deducting losses. The most reliable way to find this information is to visit the official website of your state’s department of revenue or taxation agency.