Indiana State Tax On Gambling Winnings

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If you win a sweepstakes or contest prize, you will owe income taxes to Uncle Sam and perhaps your state. Prizes are considered taxable income regardless of whether the prize is in the form of cash, trips or merchandise. If you win a prize valued over $600, the sweepstakes or contest sponsor must report the value to you and the Internal Revenue Service on a Form 1099-MISC. You're still supposed to report and pay tax on prizes under $600.

DOR wants to remind individuals that the memorandum does not apply to any taxes due to Indiana. Employers and other withholding agents should continue withholding for all taxes required under Indiana law such as wages, gambling winnings, and non-resident shareholders/partners. Gambling winnings are taxable income in Indiana. Full-year Indiana residents pay tax on all of their gambling winnings, including winnings from riverboats and pari-mutuel horse races (even those winnings from out-of-state sources).

Makes changes to the graduated wagering tax on gambling games at racinos and wagering tax on gambling games at riverboats. Provides that beginning with state fiscal years after June 30, 2021, a licensed owner or racino may not deduct more than $9,000,000 from adjusted gross receipts from wagering on gambling games. Of special note, the only state for years where casino gambling was legal, Nevada, did not tax gambling income. Check with your state to determine whether you need to report your winnings. There are often questions about how any money you win gambling online can be taxed. Online gambling taxes do have a few gray areas. All gambling winnings received from slot machines are subject to federal taxes, and both cash and non-cash winnings (like a car or a vacation) are fully taxable. Apart from slot machines, the same applies to winnings from lottery, bingo, keno, poker or other games of chance.

Addition to Income

Prizes and awards will increase your tax bill, but the question of how much depends on the value of the winnings and the amount of your other income. Prizes are taxed as ordinary income. That means you add the prize value to the income you received from your job and other sources during the year. Sometimes, a sponsor will include a cash award to help cover taxes on the prize, but the cash also is taxable income to the winner. The prize value will increase your federal adjusted gross income, which likely will increase your net taxable income after you take your exemptions and deductions. The prize win could push you into a higher tax bracket. Your federal adjusted gross income is the starting point for most state income tax returns so the value of the sweepstakes prize within your federal AGI could increase your state taxable income.

State Taxes

You will have to pay state income tax on your winnings in 39 states. If you live in one of the 11 states that don't tax sweepstakes prizes, you may be spared state income taxes. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming have no state income taxes. Additionally, California, Delaware, New Hampshire and Pennsylvania don't tax winnings on sweepstakes or other gambling. But if you live in a non-taxable state and win a sweepstakes based in a taxable state, you may have to file a tax return with the taxable state where the sweepstakes is based. If you are unsure about whether you will owe state tax on your big win, ask your state's tax collection agency.

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Tax Withholding

If the sweepstakes prize is worth more than $5,000, the sponsor must withhold 25 percent of the prize value for federal taxes and may have to withhold state taxes as well. But if the prize is a car or other expensive merchandise, you may be required to give the sponsor the cash to pay the federal tax withholding before the sponsor will release the non-cash prize to you. For instance, if you won a $25,000 car, you may have to give the sponsor $6,250 for the federal tax withholding before the sponsor will give you the car. You may also have to pay state withholding up front. The sweepstakes sponsor could choose to pay the federal tax withholding, but if it does, the sponsor's withholding rate is one-third of the prize's fair market value.

Valuing Prizes

If your prize is a non-cash award such as a trip or a car, you will owe tax on the fair market value of the prize. There is no uniform method for determining fair market value. Neither the U.S. tax code nor U.S. Tax Court rulings have specified the proper way to set the fair market value of a non-cash prize. The sweepstakes or contest promoter will report what it considers to be fair market value. That figure may be different from the 'approximate retail value' the sponsor cited in sweepstakes advertising. But the sponsor's fair market value figure may be subject to dispute. For example, parties could dispute whether the fair market value of an automobile is the manufacturer's suggested retail price or the discounted price the sweepstakes sponsor paid to buy the car.

Exempt Prizes

You can avoid all taxes on a prize if you refuse to accept it. A prize may not be taxable if it meets certain legal tests. To be tax-exempt, the prize must be in recognition of personal achievement in religious, scientific, literary, artistic, charitable, educational or civic affairs. You cannot have nominated yourself for the prize or submitted your own work for review. You can't be required to perform services as a condition for receiving the prize. You cannot claim the prize for yourself but instead must assign the prize to charity. If you assign away the prize, you don't get a charitable donation deduction. All these tests must be met to avoid tax on the prize.

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Welcome to the Indiana Department of Revenue

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Welcome to the Indiana Department of Revenue

Learn More About Our Agency and How We Serve Hoosiers.

DOR Getting Back on Track

Stay up-to-date with all changes and updates DOR has implemented as a result of COVID-19 and learn how DOR is working with Governor Holcomb's Back on Track Indiana plan with guidance from the Indiana State Department of Health.

Access the Tax Library, information on appeals, and the Rulemaking Docket from DOR.

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Important Notices

WH-3 Returns are Due Feb. 1

The WH-3 is a reconciliation form for the amount of state and county income taxes withheld throughout the year. All employers must file the WH-3 by January 31 each year. Due to that date falling on a weekend, WH-3 returns are due Feb. 1.

If you previously registered to file withholding tax, you must still file Forms WH-1 and WH-3 for each period even if no tax is due or to report no employees for that time period. Late filed WH-1 returns are subject to a penalty of up to 20%, and a minimum penalty of $5. Late filed WH-3's are subject to a penalty of $10 per withholding document (W-2, 1099, K-1).

Memorandum Deferring Payroll Tax Obligations 2020

On August 8, 2020, the White House published its Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster. DOR wants to remind individuals that the memorandum does not apply to any taxes due to Indiana. Employers and other withholding agents should continue withholding for all taxes required under Indiana law such as wages, gambling winnings, and non-resident shareholders/partners. Employees should contact their individual employer or the IRS regarding these federal-only withholding payroll tax changes. More information

Indiana DOR customers who are eligible for IRS tax relief due to natural disasters

Indiana DOR customers who are eligible for IRS tax relief due to natural disasters in Iowa and Louisiana may be eligible for similar relief in Indiana. After filing your return, email the Taxpayer Advocate Office for assistance.

Michigan State Tax On Gambling Winnings

Increase in Gasoline License Tax, Special Fuel License Tax, and Motor Carrier Surcharge Tax

P.L. 218-2017 requires the department to publish the new rates effective July 1, 2020, for the gasoline license tax (IC 6-6-1.1-201) and special fuel license tax (IC 6-6-2.5-28) on the department's Internet website no later than June 1, 2020. For the period July 1, 2020, to June 30, 2021, the following rates shall be in effect:

Missouri State Tax On Gambling Winnings

• Gasoline license tax: $0.31/gallon
• Special fuel license tax: $0.51/special fuel gallon

Indiana State Tax On Gambling Winnings

Effective July 1, 2018, the motor carrier surcharge tax (IC 6-6-4.1-4.5) will no longer be imposed. The previously imposed rate has been incorporated into the special fuel tax rate.