Maryland State Tax On Gambling Winnings
- According to maryland law, prize winnings of more than $5,000 are subject to withholding for both federal and state income tax purposes. Maryland taxes will be withheld at a rate of 9. 25 percent on a resident's winnings. An exception to this is when gambling winnings exceed $5,000.
- Income from services performed within the state: For example, a self-employed appliance repair person who travels across state lines to repair an oven in someone’s home should file a non-resident return in the oven owner's state. Lottery or gambling winnings: These are taxable in the state where you won, so you'd have to file a return.
For federal taxes, lottery winnings are taxed according to the federal tax brackets. Federal tax brackets are progressive, so portions of the winnings are taxed at different rates, and could be as high as 37%. State income taxes vary by location. Some states do not have a state income tax, while others may withhold up to 8.82%.
Many people who live in Maryland work in other states, and many people who live in other states maintain employment here in Maryland. This is true of full-time, part-time, and self-employed individuals, and it’s especially common for residents of the greater Baltimore area. Living and working in two different areas can make things a bit tricky during tax season, so we want to clear up any confusion and make things as simple as possible for you when it comes time to file your returns this spring.
Keep reading to learn more about nonresident returns, including when you’re required to file a nonresident return and even some instances where people who live and work in different states are not required to file a nonresident return. And, as always, if you have any questions about your filing status or other issues, please reach out to our team at S.H. Block Tax Services for help.
Who Needs to File a Nonresident Tax Return?
Individuals who have earned money in a state other than the one in which they permanently reside generally must file a nonresident state tax return. For instance, if you live in Maryland but work in Wilmington, you’ll need to file a nonresident return in Delaware.
Additionally, you might have to file a nonresident return if your employer mistakenly withheld taxes for the wrong state and you want to receive your refund from that state. You will likely also have to file a nonresident return if you received non-employment income in a state other than the one in which you reside.
Non-Employment Income Taxes for Nonresidents
Taxpayers who earn or receive income from out of state must file nonresident returns in addition to tax returns in their home state. Don’t worry, though — you won’t be forced to pay income taxes more than once. Sometimes, even if you don’t perform your job functions in another state, you might have to file income in one since most states tax all income sourced to their state.
Here are a few examples where you would likely need to file a nonresident income tax return:
- Business partnerships: If you earn income as a partner in an LLC, S-corporation, or another type of verified business partnership based in a state other than the one in which you reside, that income is likely taxable in the state(s) in which the partnership exists.
- Out-of-state services: Individuals who frequently travel to a neighboring state to perform services (e.g., a plumber crossing state lines to fix piping issues) must complete a nonresident return.
- Gambling profits: Taxpayers who make more than $5,000 from out-of-state gambling winnings or by playing another state’s lottery are subject to nonresident income taxes.
- Property income: If you’ve sold a piece of property or you collect rent for a property in a state other than the one in which you reside, you’ll have to complete a nonresident income tax return.
What Is a Reciprocal State?
Reciprocal states have agreements with neighboring states that allow individuals to work there without having to file a nonresident return. Many states have created these arrangements because they have major urban areas close to their borders. For example, employees who live in Bethesda but work in Washington D.C. are usually not required to file a nonresident income tax return (although they might still have to file a nonresident return if they have non-employment income from D.C. or if they had taxes withheld there). There are a few other exceptions to reciprocal state agreements, so please contact an experienced tax resolution representative if you want to know more.
As of 2018, 15 states have reciprocal agreements with one or more of their neighbors. These states include:
- Arizona
- Illinois
- Indiana
- Iowa
- Kentucky
- Maryland
- Michigan
- Minnesota
- Montana
- North Dakota
- Ohio
- Pennsylvania (ended agreement with New Jersey in 2016)
- Virginia
- West Virginia
- Wisconsin
- District of Columbia (agreements with Maryland and Virginia)
Contact S.H. Block Tax Services to Learn More
As a firm operating in Baltimore, where interstate work commutes are common, we have extensive experience dealing with nonresident tax returns and other complex tax filing issues. We’ve also handled a wide range of other tax liability issues for our clients, and we’ve helped thousands resolve their tax debt, re-enter compliance with the IRS and the State of Maryland, and forge a path back to financial freedom.
If you would like to schedule a free consultation to discuss your personal or business tax issues or ask any filing questions, please contact S.H. Block Tax Services today by calling (410) 793-1231 or completing this brief form. Our firm has achieved an A+ rating with the Better Business Bureau, and our attorneys and helpful support staff are ready to get to work on your behalf.
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Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.
Casino Winnings Are Not Tax-Free
Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.
By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.
How Much You Win Matters
While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:
- $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
- $1,500 (reduced by the wager) in keno winnings.
- $1,200 (not reduced by the wager) from slot machines or bingo
- $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.
Maryland State Tax On Gambling Winnings Rules
Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.
Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.
What is the Federal Gambling Tax Rate?
Standard federal tax withholding applies to winnings of $5,000 or more from:
- Wagering pools (this does not include poker tournaments).
- Lotteries.
- Sweepstakes.
- Other gambling transactions where the winnings are at least 300 times the amount wagered.
If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.
The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.
It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.
Can You Deduct Gambling Losses?
If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.
The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.
What About State Withholding Tax on Gambling Winnings?
There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.
Maryland State Tax On Gambling Winnings 2020
Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.
State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.
How to Report Taxes on Casino Winnings
You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.
Maryland State Tax On Gambling Winnings Money
You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.
Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.