Whether you’re a daily online casino player or you play more casually, there’s an important factor to consider when the winnings start rolling in: taxes. In the U.S., laws and regulations regarding taxes vary by state and can be complex. With that said, let’s look at how gambling winnings are taxed in Arizona and what you need to do to stay compliant.

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Federal Taxation of Your Gambling Winnings

In Arizona, all gambling winnings are taxable regardless of whether you’ve won the money online or in a physical casino. Also, all casino games, including slots, card games, sports betting, and the Arizona Lottery, are taxable. They’re subject to both federal and state income tax.

The Internal Revenue Service (IRS) requires the operator to withhold 24% of your winnings for federal income tax for winnings that exceed certain thresholds that vary based on the type of bets you’ve placed. Below, we’ll list the key thresholds that trigger a W-2G form:

  • $600 or more for sports betting, horse racing, or lottery
  • $1,200 or more for slot machines and bingo
  • $1,500 or more for keno
  • $5,000 or more for poker tournaments

If your winnings exceed these figures, you will receive a W-2G form from the Internal Revenue Service (IRS) or the casino via mail.

Even if your winnings don’t exceed these figures, you still owe the federal government 24%; you just won’t receive the W2-G automatically and will have to report the winnings yourself.

With taxes taking a significant portion of your winnings, you may want to take advantage of the high bonuses offered by new online casinos that are based internationally. Since they offer higher bonuses and more generous promotions than locally licensed operators, your profits may also be significantly higher.

Another important thing to mention is that your gambling winnings on offshore platforms are also taxable and it’s up to you to report them to the IRS.

Arizona Taxation of Your Gambling Winnings

In addition to federal taxes, state income taxes are applied to your winnings on all forms of gambling. Arizona previously used a progressive tax structure with rates ranging between 2.59% and 4.50%.

This was then reduced to 2.55% and 2.98% before being replaced with a flat income rate of 2.5%. This means that regardless of what your income is, you’ll pay the 2.5% rate for your gambling winnings just like for other sources of income.

All gambling winnings should be reported as other income on a Form 1040.


Another thing to note is that Arizona is one of the U.S. states that taxes out-of-state lottery winnings. In other words, if you win a multi-state lottery like Mega Millions or Powerball, you’re still required to pay state income tax on your winnings.

Deducting Gambling Losses

While all gambling winnings must be reported, you can deduct gambling losses, but only if you itemize your deductions on your tax return. The key point is that your gambling losses cannot exceed the amount of gambling income you report.

Let’s say you’ve won $8,000 but lost $10,000. In this scenario, you can only deduct $8,000 of your losses. Losses beyond your winnings cannot be used to offset other income.

To be able to deduct your losses, it’s important to keep track of your gambling activities, such as dates and types of activity, casinos you’ve played at, amounts won and lost, and supporting documentation like receipts, tickets, or bank statements.

Keeping detailed records helps you avoid mistakes when filing your taxes and ensures you’re prepared in case of an audit.

Conclusion

What you need to remember is that all gambling winnings in Arizona are subject to both federal and state income taxes. Regardless of the amount, you’ll have to report them on your tax returns. In some cases, you’ll receive the W-2G form automatically, while in others it’s your responsibility to report the winnings. It’s also possible to deduct your losses, but they cannot exceed your gambling income.