Are Winnings From Sweepstakes Casinos Taxable?
Yes, winnings from sweepstakes casinos are taxable. According to the Internal Revenue Service (IRS), all prizes and awards you win are considered income and must be reported on your tax return. This includes any winnings from sweepstakes casinos, whether it's cash, cars, trips, or other prizes.
The amount of tax you pay on these winnings depends on your total income for the year and your tax bracket. Generally, federal taxes on sweepstakes winnings can range from 22% to 37%, depending on your income level. Additionally, state taxes may apply, varying by state, and could add another 0% to 13.3% to your tax liability.
Tax Implications Based on Sweepstakes Entry Method
However, the tax treatment of your winnings can differ depending on how you entered the sweepstakes.
If You Did Not Pay To Enter
If you entered a sweepstakes without paying — such as a "no purchase necessary" sweepstakes — your winnings are still considered taxable income, but they are not classified as gains from a wagering transaction under §165(d) of the Internal Revenue Code. This means that while you must report the winnings as income, you cannot offset these winnings as gambling losses because they were not considered the result of a wager.
The IRS clarifies this distinction in a Technical Advice Memorandum (TAM 200417004), stating that:
"the taxpayer’s winnings are not gains from a wagering transaction for purposes of § 165(d) because the taxpayer did not furnish consideration for the chance to win the prize."
If You Paid To Enter
In contrast, if you paid to enter the sweepstakes, such as buying Gold Coins to receive Sweeps Coins, your winnings may be considered gains from a wagering transaction.
In this case, they are treated similarly to gambling winnings. This distinction is important because gambling winnings can be offset by losses from other wagering transactions, potentially reducing your taxable income.
How To Report Sweepstakes Casino Winnings To The IRS
When it comes to reporting sweepstakes casino winnings to the IRS, it’s important to follow the correct procedures to ensure you comply with tax laws. Here's how to report your winnings based on whether you paid to enter or not:
Reporting Winnings When You Did Not Pay to Enter
If you won a sweepstakes without paying to enter—such as in a "no purchase necessary" promotion—you are required to report the full amount of your winnings as income on your tax return.
These winnings are reported as "Other Income" on line 8 of Schedule 1 (Form 1040). Since the IRS does not consider these winnings as gains from a wagering transaction under § 165(d) of the Internal Revenue Code, you cannot offset these winnings with any gambling losses. This means you must include the entire value of the prize in your taxable income.
Reporting Winnings When You Paid to Enter
If you paid to enter the sweepstakes, such as by purchasing Gold Coins to receive Sweeps Coins, your winnings are considered gains from a wagering transaction.
In this case, the IRS treats these winnings similarly to gambling winnings. You must report the full amount of your winnings as income, but you can also deduct gambling losses up to the amount of your winnings. To do this, you would report your winnings on line 8 of Schedule 1 (Form 1040) and deduct your losses on Schedule A (Form 1040) as an itemized deduction.
Will Sweepstakes Casinos Report My Winnings To the IRS?
Yes, sweepstakes casinos are required to report your winnings to the IRS if the amount exceeds a certain threshold. Typically, if you win $600 or more in a sweepstakes, the entity that awarded the prize is required to issue a Form 1099-MISC or Form W-2G, which reports the prize amount to both you and the IRS.
This applies to both cash prizes and the fair market value of non-cash prizes, such as cars or trips. It’s important to note that even if your winnings are less than $600, you are still legally required to report them as income on your tax return. However, in cases where the winnings are under the reporting threshold, the casino may not automatically report them to the IRS, so it's your responsibility to ensure they are accurately reported on your tax return