California Gambling and Taxes

With several ways to gamble legally in California, residents should know what their obligations are when it comes to paying taxes on gambling winnings.

Each year the IRS requires Californians to pay federal taxes on their personal income. Meanwhile, the California Franchise Tax Board likewise levies a state income tax on residents. In both cases, gambling winnings typically count as income, and people must pay taxes accordingly.

One significant exception to this rule in California concerns lottery winnings. California residents have to pay federal tax when they win money playing the California State Lottery. But they do not have to pay state or local taxes on lottery winnings.

There are other important details worth knowing with regard to how California taxes gambling winnings. Read on for an overview of everything you need to know to make sure you are fulfilling your tax obligations whenever you win money gambling in the state.

How does California tax gambling winnings?

California has many types of legal gambling. The state has nearly 70 tribal casinos, close to 100 card rooms, several horse racing tracks, off-track betting facilities, and a state-run lottery. There’s charitable gambling as well in the form of bingo and raffles.

In other words, in a state with 40 million residents, there’s a lot of money moving back and forth in the context of legal gambling in California. It’s no surprise to find the state collecting taxes on gambling revenue from venues and providers. It’s also no surprise that California collects taxes on gambling winnings from individuals, too.

In California, the amount of state tax you owe depends on how much you make each year. In other words, like other states, California employs a graduated income tax system. Those who earn higher income have to pay a higher percentage of state tax than those who earn less.

California taxes gambling winnings as personal income. That means the money you win gambling can potentially bump you into a higher income category. That in turn would increase the percentage of state tax you have to pay not just on your gambling winnings, but on your entire personal income.

California sets several income thresholds, and where you land determines your state tax obligation. Currently, the lowest state tax rate is 1%, while the highest is 12.3%.

In most cases the amount you’ll owe is not strictly a percentage of your income. Rather, depending on your category, you’ll owe a set amount plus a percentage of what you earn above the lowest amount in that category’s range.

California state income tax rates

Look below for the state income tax obligation for 2021 for Californians filing their returns in 2022.

Single, married/registered domestic partner filing separately

  • $0 to $9,325: 1%
  • $9,326 to $22,107: $93.25 + 2% of income over $9,325
  • $22,108 to $34,892: $348.89 + 4% of income over $22,107
  • $34,893 to $48,435: $860.29 + 6% of income over $34,892
  • $48,436 to $61,214: $1,672.87 + 8% of income over $48,435
  • $61,215 to $312,686: $2,695.19 + 9.3% of income over $61,214
  • $312,687 to $375,221: $26,082.09 + 10.3% of income over $312,686
  • $375,222 to $625,369: $32,523.20 + 11.3% of income over $375,221
  • $625,370 and up: $60,789.92 + 12.3% of income over $625,369

Married/registered domestic partner filing jointly (or qualifying widower)

  • $0 to $18,650: 1%
  • $18,651 to $44,214: $186.50 + 2% of income over $18,650
  • $44,215 to $69,784: $697.78 + 4% of income over $44,214
  • $69,785 to $96,870: $1,720.58 + 6% of income over $69,784
  • $96,871 to $122,428: $3,345.74 + 8% of income over $96,870
  • $122,429 to $625,372: $5,390.38 + 9.3% of income over $122,428
  • $625,373 to $750,442: $52,164.17 + 10.3% of income over $625,372
  • $750,443 to $1,250,738: $65,046.38 + 11.3% of income over $750,442
  • $1,250,739 and up: $121,579.83 + 12.3% of income over $1,250,738

Head of household

  • $0 to $18,663: 1%
  • $18,664 to $44,217: $186.63 + 2% of income over $18,663
  • $44,218 to $56,999: $697.71 + 4% of income over $44,217
  • $57,000 to $70,542: $1,208.99 + 6% of income over $56,999:
  • $70,543 to $83,324: $2,021.57 + 8% of income over $70,542
  • $83,325 to $425,251: $3,044.13 + 9.3% of income over $83,324
  • $425,252 to $510,303: $34,843.34 + 10.3% of income over $425,251
  • $510,304 to $850,503: $43,603.70 + 11.3% of income over $510,303
  • $850,504 and up: $82,046.30 + 12.3% of income over $850,503

Are there local taxes for gambling winnings in California?

None as such, since no cities in California currently assess local income tax. San Francisco used to assess a payroll expense tax that people sometimes described as a local income tax, but that was paid by employers and was repealed at the start of 2021.

Do I have to pay tax on California Lottery winnings?

Yes, you do have to pay federal tax on California Lottery winnings. However, you do not have to pay state or local taxes on any money you win playing the lottery in California.

This sets California apart compared to other states, where you almost always have to pay state tax on lottery winnings. The only other states where you don’t have to pay state tax on lottery winnings are ones that don’t have state income tax at all (e.g., Florida, Texas).

The CA Lottery won’t withhold state or local taxes from your winnings, and those winnings won’t count toward your personal income when you file your state tax return to the California Franchise Tax Board.

Note that if you are a California resident and you win money in another state’s lottery, you do have to report those winnings when filing your state tax return.

When it comes to your federal tax obligation on lottery winnings, it works the same as any other gambling winnings in California. The money you win counts as personal income, and you should therefore note it as such when you complete your federal tax return and send it to the IRS.

When you win $600 or more playing the California Lottery, the lottery will report your winnings to the IRS. When you win $5,000 or more, the lottery will also automatically withhold federal taxes from your prize.

Do I need to report my gambling winnings to the IRS?

Yes, Californians have to report all gambling winnings to the IRS, including lottery winnings. In some cases, the establishments and gambling venues where you won your money will have already reported your winnings to the IRS.

In those cases, you will receive an IRS Form W-2G listing the amount of your winnings (discussed below). Even if you don’t receive a Form W-2G after you’ve won money gambling, you are still obligated to report those winnings to the IRS.

How much federal tax is withheld on gambling winnings?

Just like with state tax, how much federal tax you have to pay on gambling winnings depends in part on your overall personal income. Since the IRS considers gambling winnings the same as your income, whatever you win will increase your total income and thereby potentially move you into a higher tax bracket.

That said, you can more or less count on your federal tax obligation on gambling winnings to be around 24% of what you win (minus the amount that you bet). That’s the amount that providers will automatically withhold on big gambling wins ($5,000 or more). The 24% flat tax is in fact an estimation, which means in the end you might actually owe more or less federal tax depending on how your winnings affect your overall income level.

The IRS uses a graduated income tax system for federal taxes not unlike the one California uses for state taxes. The IRS also taxes differently depending on whether a person is single, married filing jointly or separately, or the head of a household.

We won’t reproduce all the income categories and associated federal taxes here, but know that there are seven tax brackets. The lowest earners pay 10% federal income tax while the highest pay 37%.

The 24% tax rate applies to the middle category for each filing status, which is why the 24% withholding on big gambling wins is an estimate. If you’re in a lower tax bracket, you’ll pay less than that on your gambling winnings. If you’re in a higher tax bracket, you’ll be paying more federal tax on your gambling winnings.

Regular gambling withholding, backup withholding, non-citizen withholding

In the past, those without a Social Security number or Individual Taxpayer Identification Number (or who failed to disclose either to the establishment where they won money while gambling) would find the establishment withholding a higher percentage of their winnings for federal taxes. This “backup withholding rate” was 28%. However, that is not the case anymore, and now the backup withholding rate matches the regular rate of 24%.

Meanwhile, if you are not a citizen and you win money while gambling in the US, the amount for federal taxes is 30%.

IRS Form W-2G

When it comes to reporting your gambling winnings, Form W-2G comes in quite handy.

In California, whenever you win a significant amount of money while gambling at a tribal casino, card room or a horse racetrack or off-track betting facility, or when playing the lottery or engaging in any other type of legal gambling, the entity will report your winnings to the IRS. At the same time, the entity will provide you a prefilled Form W-2G listing the amount of your win and how much federal tax it has withheld, if any.

Generally speaking, your win will need to exceed certain thresholds for the entity to report it to the IRS and give you a Form W-2G. Those thresholds are as follows:

  • $1,200 or more from a bingo or slot machine (not reduced by the amount of your wager).
  • $1,500 or more from keno (reduced by the wager).
  • $5,000 or more from poker (reduced by the wager or tournament buy-in).
  • $600 or more or at least 300 times your wager for other types of gambling.

Note that you typically won’t receive a Form W-2G when playing table games like blackjack or roulette in a casino, or even when you play poker cash games (i.e., not tournaments). Form W-2G will also show you if federal taxes have been withheld from your winnings. That automatically happens when you win $5,000 or more.

Transferring information from your W-2G to your federal income tax return

Form W-2G is fairly uncomplicated. You’ll use it to help determine how to report your gambling winnings when filing your federal tax return. Incidentally, you don’t have to attach W-2G form(s) to your return when filing.

You’ll see your personal information on the left side, while various types of information will appear in numbered boxes over on the right. You’re really only going to be concerned with two of these boxes when figuring out how to transfer information from your W-2G form(s) to your federal income tax return:

  • Box 1: “Reportable winnings”
  • Box 4: “Federal income tax withheld”

Reporting gambling winnings from Form W-2G

When you fill out Form 1040 for the IRS, there’s a line where you list “Other income” (Line 8). That’s where you’ll need to include your gambling winnings, which the IRS considers just another type of personal income.

There’s another Form 1040, Schedule 1 that serves as a worksheet you can use to help you complete Form 1040. On that form, you’ll see Line 8 (“Other income”) broken down into a couple of dozen subcategories, one of which is “Gambling income” (Line 8b). When filling out that form, list the amount of your “Reportable winnings” from Box 1 of Form W-2G as “Gambling income” and add it to whatever else you list as “Other income.” At the bottom of the page you’ll combine everything together (on Line 10) to have the amount you’ll then need to report as “Other income” on Line 8 of Form 1040.

If you have multiple W-2G forms, you’ll want to add up all of your reportable winnings first before transferring that total to Form 1040, Schedule 1 to include with your “Other income” on Form 1040. You’ll also need to add to that total any other gambling winnings you’ve received during the year for which you have not received a Form W-2G.

Reporting taxes withheld from Form W-2G

You’ll also want to report any federal taxes already withheld from your gambling winnings so you get credit for having already paid those. Look at Box 4 on your Form W-2G. Whatever amount appears there, list it on Line 25c of Form 1040 where you report “Federal income tax withheld from” your “other forms.” Again, if you have multiple W-2G forms, you’ll want to add up the total amount of tax withheld and include it on your Form 1040.

That might sound a little complicated, but it’s fairly easy to go through step by step. If you use tax preparation software, you’ll find you can enter the information about your winnings and taxes withheld from your W-2G form(s) where you receive a prompt, and the program will handle the rest.

How do I report gambling winnings to the state of California?

When you complete your California state tax return, you will look at your federal adjusted gross income and report that amount as well on your California return. Since you’ve already included your gambling winnings when calculating your income on your federal income tax return, the income you report on your state return will reflect those winnings, as well.

Remember, though, that California does not require you to pay state income tax on in-state lottery winnings. That means if you did win money playing the California Lottery, you will want to make sure to let the state know so your lottery winnings won’t count as income for your state tax obligation.

California residents typically complete Form 540 or Form 540 2EZ when filing their state tax return to the California Franchise Tax Board. Lottery winners will also want to complete and submit a California Adjustments — Residents form CA (540) and attach it to their state return.

This extra form has a section on “Additional income” under which appears the item “Other income.” There you’ll see a line marked “California lottery winnings” where you can enter the amount you’ve won. You will then subtract that amount from your overall income (along with any other adjustments that you entered on the form).

If you have any questions about how to report gambling winnings when filing your taxes in California, be certain to consult a tax adviser.

California gambling taxes FAQ

Can I claim losses against my gambling income?

You can, but you can only do so if you itemize your deductions. If you choose to take the standard deduction, you cannot claim losses against gambling income. If you do itemize your deductions, you can use Form 1040, Schedule 1 (described above) to calculate them. Itemizing deductions and claiming these losses against your gambling income has to happen separately. That is, you can’t simply subtract losses from wins and report the difference. Note also that you can’t deduct more than you have won (even if your losses exceed your winnings), and you also can only deduct what you’ve actually spent gambling and not any associated expenses (e.g., travel to a poker tournament).

Do I have to declare non-cash prizes that I’ve won while gambling?

Yes, you do have to declare non-cash gambling prizes as income. Let’s say you’ve won a car in a raffle. Find out the car’s fair market value and add that amount to whatever other gambling winnings you are reporting as income for the year.

What if I win money or prizes while gambling in another state?

If you win while gambling in a state other than California, you will need to include those winnings when reporting your gambling income on your federal tax return. If you receive a Form W-2G for your winnings when gambling in another state, that state also receives a copy and will expect you to file a non-resident state return if you meet its minimum requirement for doing so.

What is a Form 1099-MISC (and what do I do with it)?

You use IRS Form 1099-MISC to report miscellaneous income and other types of financial remuneration. There are many reasons why you might receive a 1099-MISC, including sometimes for winning prizes or awards. You’ll report this income and also note any taxes withheld when filling out your tax return, much as you would do with a Form W-2G.

What is the penalty for not reporting gambling winnings to the state of California or the IRS?

You risk many negative consequences for not reporting or underreporting gambling winnings. These can include having to pay additional taxes, fines, and/or interest. If you receive a Form W-2G and don’t report those winnings, you’ll likely receive an underreported income notice from the IRS and face associated penalties. You also increase your chance of undergoing an audit if you fail to report gambling winnings or try to report more gambling losses than winnings. Bottom line: Don’t gamble with your gambling winnings by not reporting them fully when filing your state and federal taxes.

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