Michigan Gambling Winnings Tax Calculator: How Will You Be Taxed?
You can bet online or in person in Michigan, which is one of the fastest-growing gambling markets in the United States. While online gambling seems like just something you do for fun, you must pay taxes on your winnings. Why? When states decided to legalize gambling, a large reason they did so was to generate tax revenue to pay for schools, infrastructure and more.
In Michigan, as in other states where gambling is legal, all winnings are subject to taxes. If you are betting on the Pistons or playing craps at an online casino or in person, you must pay federal and state taxes when you win.
So, when exactly do you need to report your gambling winnings to the Internal Revenue Service? This page answers this question and also helps you understand how and why gambling wins are taxable. While it should serve as a guide, taxable income is a complicated matter, so it will always benefit you to consult a tax professional to ensure you are paying the proper tax in accordance with federal and Michigan laws in regards to your gambling activities.
Michigan Gambling Winnings Tax Calculator
Your tax rate is dependent on a few things, such as your tax bracket and annual income. Any income from gambling winnings is subject to both state and federal taxes, but FICA taxes are not included. FICA, which stands for Federal Insurance Contributions Act, is a U.S. federal payroll tax. The final tax rate is calculated based on your total taxable income minus any itemized deductions. State tax in Michigan is 4.25%, which is the rate gambling winnings are subject to.
Are Gambling Winnings Taxable?
Gambling winnings are taxable in Michigan. This includes winnings from any real money online casino in Michigan, online sports betting, poker tournaments, and the Michigan Lottery. Sportsbooks or casinos can withdraw federal and state tax before paying you, and they will give you a W-2G proving that these taxes were already paid. However, you still must keep track of these winnings and include them on your tax return.
Are Gambling Promotions Taxable?
When you sign-up for a sportsbook, odds are you enrolled in a welcome promotion. While many of these sports betting promotions repay you in site credit and bonus bets, when you do have a balance that you are able to withdraw, that amount is subject to taxes. This will be true for any online casino as well, including future ones like Hollywood Online Casino in Michigan.
To reiterate, even if you begin with site credit, anything you win and can withdraw is considered taxable. So, the fair market value of this amount is taxable. Do not forget to include any amount you withdrew as winnings on your Michigan tax return and your federal tax return as well.
What are the Gambling Winnings Tax Rates in Michigan
In Michigan, gambling winnings are subject to a 24% withholding for federal tax. That said, the actual amount you need to pay taxes on depends on your total income. If you hit a certain threshold of gambling winnings, the tax is withheld for you.
Michigan has a 4.25% state income tax, and your income tax bracket needs to include your total winnings.
How to Report Michigan Gambling Winnings
If you win a certain amount of money at casinos, a poker tournament, a sportsbook or any gambling activity, you will receive a W-2G form. This form outlines your winnings and states if any taxes were withheld. The IRS will be sent a copy of this form as well.
The thresholds to receive a W-2G from a payor are as follows:
- Winning $1,200 or more from slot machines or bingo
- Winning $1,500 or more from a keno game
- Winning More than $5,000 from a poker tournament (less the buy-in amount)
- Winning $600 or more from an event like horse racing if the payout was at least 300x the wager amount
Winnings on casino games, such as craps, roulette, blackjack and so forth are also subject to tax, but casinos are not required to give players a W-2G for these games. Players must track these figures themselves for their tax returns. Additionally, if you win a prize, such as a car or a vacation, you must report the fair market value of each prize to the IRS on your federal return.
This holds true even if you are just visiting Michigan to bet. In other words, even if you are not a resident, any winnings from gambling activities that you receive in the state are subject to Michigan state tax.
What If I Don’t Receive a W-2G in Michigan?
If you do not reach the automatic threshold for receiving a W-2G for your gambling income, you still need to be cognizant of your gambling winnings as they are taxable. Online sportsbooks and online casinos should have records of your betting activity for the calendar year, so you should be able to access this information on the operator's website. However, as a precaution, you should always maintain records of your gambling activity so that you're aware of your profits.
Can I Deduct Gambling Losses?
Yes, you are allowed to deduct gambling losses. However, in order to do so, the following terms must be satisfied:
- You can only deduct losses if you itemized deductions on your tax return. Taxpayers who take the standard deduction cannot deduct gambling losses.
- If your itemized deductions are Schedule A, gambling losses cannot be greater than your gambling winnings for the year. So, if you won $5,000 but lost $15,000, you can only deduct up to $5,000. The additional $10,000 in losses cannot be deducted.
In order to substantiate gambling winnings and gambling losses, you need to have the following documents:
✔ Form(s) W-2G
✔ Form 5754 (group gambling winnings)
✔ Tickets with dates, locations and the amount you won or lost, including group gambling wins and losses
✔ Canceled checks or credit records
✔ Financial statements and bank statements
Michigan Lottery Taxes
Any winnings accrued through the Michigan Lottery are subject to federal, state and local taxes.
- The Michigan Lottery does not withhold taxes on prizes $600 or lower.
- Winners of individual prizes great than $600 will receive a W-2G form. Michigan does not withhold taxes on winnings from $601 to $5,000, but you must report these winnings to the IRS and the Michigan Department of Treasury.
- Winnings greater than $5,000 are subject to automatic withholdings at both the state and federal tax levels. 24% will be withheld for federal taxes, and 4.25% will be withheld for Michigan state tax.
It is important to work with a financial or tax advisor to ensure you are paying the right amount of tax, even if the state and federal government already withhold some of the winnings.
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How are Group Lottery Wins Taxed in Michigan?
Any group that wins the Michigan Lottery needs to submit Form 5754. Each group member will need to disclose their social security number, provide a photo ID and sign the form. One group member must proclaim himself or herself as the primary winner. Then a check and a W-2G form will be sent to each group member. Federal and state taxes will already be deducted from these checks if they meet the threshold for automatic withholdings.
Taxes on Multi-State Lottery Wins
The same tax liability is at hand if you win the Michigan Lottery or a larger, multi-state lottery, such as the Mega Millions or the Powerball. To reiterate, this is a 24% federal tax rate withholding and a 4.25% Michigan tax rate withholding. These taxes must be paid regardless if you choose to take the lottery winnings in a lump sum or in the form of an annuity.
What if I Don’t Report My Gambling Winnings?
Not reporting your gambling winnings is not in your best interest. When a payor provides you with a W-2G, the IRS also gets a copy, so they are aware your gambling activity and winnings.
If you did not get a W-2G, you should not look the other way because that does not mean you are off the hook. The IRS may not be immediately aware of your winnings and the tax you need to pay, but you are still legally obligated to report your gambling income in Michigan.
Failing to pay taxes on your gambling income can lead to you paying interest or penalties for not reporting your income properly. So make sure you pay your taxes on all winnings, thats whether you are playing on an old operator or a new Michigan online casino.
Author
Eric Pauly focuses his time on reviewing the top sportsbooks and casinos in the world to ensure gamers and bettors know exactly what they are getting when they sign-up to a new site or download a new betting app.
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