Connecticut Gambling & Taxes
Connecticut has a lot to offer gamblers despite its relative size in comparison to other states. Not only does it boast two of the biggest tribal casinos in North America but also a robust lottery. The looming launch of both online and retail sportsbooks in Connecticut will expand the options further. Simply put, there are plenty of chances to win some money gambling in Connecticut. Therefore, that means several chances to pay taxes on such winnings.
Regardless of how you win prizes gambling, the prize grantors will withhold part of your winnings if they over certain thresholds. As far as the CT Dept. of Revenue and the federal government’s Internal Revenue Service are concerned, your gambling winnings are taxable income. Whether you get a line hit playing slots, guess right playing craps, buy a winning lottery ticket, or in the near future make a clever sports bet, it’s all the same to those tax-collecting bodies.
Questions that CT gamblers may have about their tax situations include when their winnings qualify for reporting, how to report those winnings, how much taxes they might have to pay, and if there are any relevant deductions. All these answers and more are accurate in CT for the tax year 2021.
How much gambling winnings get taxed
Across the country, most gambling companies have a standard practice of automatically withholding a quarter of gambling winnings for tax purposes. That’s the norm if they have gamblers’ identifying information, like their addresses, names, and Social Security numbers. If they lack that information, they could withhold up to 28% to err on the side of caution. That could be enough to take care of your tax responsibilities but it also might not. It depends on your personal tax situation on an annual basis.
What’s the IRS withholding rate for gambling winnings?
Since the tax year 2017, the IRS’ withholding rate for qualifying gambling winnings of $5,000 or more over the course of a tax year is 24%. The IRS code includes cumulative winnings from:
- Certain pari-mutuel pools
- Jai Alai
- Wagering pools
That isn’t the complete list of all gambling winnings that are taxable, though. In fact, every dollar you win gambling is taxable. It doesn’t matter if you actually made a profit gambling for the year. If you received any gambling winnings, it’s your responsibility to report them on your income taxes for that year.
What to know about the federal form W-2G
So, how exactly do you report gambling winnings to the IRS? Federal Form W-2G, Certain Gambling Winnings, is the answer. As long as you provide the prize grantor with the information it needs, the gambling company will take care of getting this form to you. It tells both the IRS and you exactly how much was paid to you and any amounts withheld from your winnings for an entire tax year. Each entity you gambled with during the year takes care of this for itself.
That means if you won some money playing the CT Lottery and at a tribal casino during the year, you’ll get a separate W-2G from each. They will usually get these forms out to you if your payouts for the year were:
- Your winnings (not reduced by the wager) are at least $1,200 from a bingo game or slot machine
- Your winnings (reduced by the wager) are at least $1,500 from a keno game
- The part of poker tournament pool(s) you claimed (reduced by the buy-in or wager) are more than $5,000
- Except for winnings from bingo, keno, poker tournaments, and slots, your winnings are at least $600 and at least 300 times your wager (reduced by the wager)
- For any reason, your winnings are subject to federal income tax, either backup or regular gambling withholding
Gamblers should note that those amounts are cumulative throughout the year. So, for example, if you claimed a $1,000 profit playing poker at a casino six separate times during the year that would get you up over that $5,000 threshold. Once you have all the W-2G forms you expect, transferring the pertinent information to your federal tax return is quite easy.
How to report gambling winnings in Connecticut
All you might have to do is report your activity as opposed to making a payment to the IRS as gambling companies in Connecticut withhold part of your winnings. For that reason, there’s no benefit to trying to hide or underreport your gambling winnings. You would risk an audit with possible consequences like fines and interest. Additionally, you might actually cheat yourself out of some refund dollars. It’s quite fast and simple to report your activity for the year to the IRS.
It’s completely irrelevant whether you made any profit during the year. All the IRS cares about is how much you won and how much may have been withheld on your behalf. An unfortunately common mistake among gamblers is they assume that if they lost money, they don’t have to report their winnings. Alternatively, some gamblers think they can subtract what they wagered from their winnings and only report the difference. Neither of those things are true.
To start, gather all your W-2G forms for the year if you have more than one. All you really need to pay attention to are the figures in Box 1 and Box 4 of each form. The numbers in Box 1 are what you won for the year. To report your winnings, add up all the figures. Once you have a sum, write that down on your IRS Form 1040, Schedule 1 as “Other Income.” You might have other sources of income for the year that pertain to this category as well. Once you have a sum from that consideration, transfer that total to Line 8 of your Form 1040.
Box 4 is any amounts that were withheld on your behalf during the year. Again, add those figures up if you have more than one W-2G. Put that sum on Line 17, Federal Income Tax Withheld, of your Schedule 1. Attach the Schedule 1 to your 1040 before you file. Do not include your W-2G forms with your federal return, though. Do keep those for your records. You are now finished with your gambling winnings reporting as far as the IRS is concerned.
Connecticut state taxes for gambling
State law in Connecticut requires prize grantors to withhold 6.99% on all gambling winnings that are either:
- Reportable for federal tax purposes, OR
- Subject to federal withholding tax
This law applies to all CT Lottery winnings regardless of one’s state of residency. However, for non-residents, most other gambling winnings are not subject to state taxes. Whether part-year and permanent CT residents have to pay state taxes on gambling winnings is dependent upon a gross income test. Starting with the tax year 2011, that test is as follows:
If the winner’s gross income for the tax year exceeds:
- $12,000 and the winner is filing separately
- $13,000 and the winner is filing as single
- $19,000 and the winner is filing as head of household, OR
- $24,000 and the winner is filing jointly or qualifying widow(er) with dependent child
Whether the gross income was made in Connecticut or not is irrelevant for the purposes of this test. If a winner’s gross income for the year does not pass the test but income tax is withheld from the winner’s payout anyway, the winner will need to file a CT income tax return in order to receive a refund. It’s also important to note that the state does not allow either full-year or part-year residents to claim income taxes paid to other states on gambling winnings as a credit against CT income taxes. For instance, if a CT resident wins a prize at a Massachusetts casino and the casino withholds part of the winnings for MA taxes, that winner will still have to pay the full amount to Connecticut regardless.
CT tax schedules for the tax year 2021
How much state tax you owe on your gambling winnings from 2021 depends on how much ordinary income you had from all sources over the course of the year. Like several other states, CT has a graduated tax with multiple levels. The rates and thresholds vary based on how you file, as well. If you are single or are married but filing separately, these brackets for 2020 are based on the amount in Line 3 of your Form CT-1040:
- $0 to $10,000: 3%
- $10,001 to $50,000: $300 plus 5% of the excess over $10,000
- $50,001 to $100,000: $2,300 plus 5.5% of the excess over $50,000
- $100,0001 to $200,000: $5,050 plus 6% of the excess over $100,000
- $200,001 to $250,000: $11,050 plus 6.5% of the excess over $200,000
- $250,001 to $500,000: $14,300 plus 6.9% of the excess over $250,000
- $500,000 and above: $31,550 plus 6.99% of the excess over $500,000
If you are married and file jointly or you are a qualifying widow(er), this is your tax schedule for 2021:
- $0 to $20,000: 3%
- $20,001 to $100,000: $600 plus 5% of the excess over $20,000
- $100,001 to $200,000: $4,600 plus 5.5% of the excess over $100,000
- $200,0001 to $400,000: $10,100 plus 6% of the excess over $200,000
- $400,001 to $500,000: $22,100 plus 6.5% of the excess over $400,000
- $500,001 to $1 million: $28,600 plus 6.9% of the excess over $500,000
- $1 million and above: $63,100 plus 6.99% of the excess over $1 million
Finally, if you file as head of household, this is what your marginal rates look like:
- $0 to $16,000: 3%
- $16,001 to $80,000: $480 plus 5% of the excess over $16,000
- $80,001 to $160,000: $3,680 plus 5.5% of the excess over $80,000
- $160,0001 to $320,000: $8,080 plus 6% of the excess over $160,000
- $320,001 to $400,000: $17,680 plus 6.5% of the excess over $320,000
- $400,001 to $800,000: $22,880 plus 6.9% of the excess over $400,000
- $800,000 and above: $50,480 plus 6.99% of the excess over $800,000
It’s important to understand how a graduated tax is different from a marginal tax. In marginal taxes, you pay more on the last dollar you make each year as opposed to the first. In a graduated tax, you pay a higher rate as you make more money. Simply take the figure from Line 3 and match it to the range for your filing status. For example, suppose a married couple in CT made $150,000 in 2020 and filed jointly. Without any credits or deductions, their tax liability on that income would be $4,600 plus 5.5% of $50,000 (the excess over $100,000), which would be $2,750. Thus, their grand total would be $7,350.
How to report CT gambling income to the state
If you are a full-time CT resident, the form you need is the CT-1040. Part-year or non-residents, CT-1040NR/PY is for you. On the CT-1040, you will place your federal adjusted gross income on Line 1. That amount will already contain all your gambling winnings for the year. If any of your W-2G forms show Connecticut or CT in Box 13, then you will need the amounts in Box 14 here as well. If your W-2Gs show any other jurisdiction other than CT, do not include them here. Add up all the relevant figures in the appropriate Box 14s of your W-2Gs and add that sum to all your other state withholding for the year that goes in Box 18 of your CT-1040. For your CT taxes, you do need to include any W-2G forms with your return.
For non-residents and part-year residents filing with a CT-1040NR/PY, you again need to check Box 13 on your W-2G forms to make sure that the relevant state is CT. If that is the case, combine the amounts in Box 1 of all appropriate forms and add that to any other income that qualifies as “Other” on Line 14 of your CT-1040NR/PY. If there are any amounts in Box 13 of the same W-2G forms, you would add those figures to the rest of any CT tax withheld, on Line 20. Unlike with your federal tax return, if you claim any CT tax withheld, you must attach the W-2G forms to your return.
I’m missing a Form W-2G. What should I do?
Just like with W-2s from an employer or 1099s for contractors, you should get all the W-2G forms you expect by mid-February at the latest. If you’re still missing a form you believe you should have received, the first thing to do is contact the gambling company you believe owes you such a form. The company may have incorrect information like a wrong address. They can correct their database and then get it out to you. Regardless of what happened, not receiving a W-2G does not let you off the hook as far as paying and reporting taxes on your gambling winnings go. If you’re unsure how much to report, bank statements and rewards programs with gambling companies are the first place to look for a record of your activity.
If I’m part of a group that wins a prize, how do I handle that situation?
IRS Form 5754 is your best friend in this situation. This form lets the prize grantor know the important details of everyone in the group. With this form, the gambling company can fulfill its responsibility to get each member of the group their own W-2G. If you’re part of a group that scores a winning lottery ticket, for example, you need to choose one person to fill out the 5754, make copies for everyone in the group, then give the original to the entity granting the prize. From there, everyone is on their own to report their share of the winnings and perhaps pay the appropriate taxes.
Are there any tax deductions related to gambling?
Not as far as Connecticut goes but with the IRS, that’s a maybe. You can deduct gambling losses from your federal taxable income. However, this often doesn’t make sense to do. First, you have to opt to itemize your deductions if you want to do this. That means you have to forfeit the standard deduction for your filing status. In turn, that means your deductible losses would have to be greater than that standard deduction amount for you to come out ahead.
There’s a cap on deductible gambling losses, too. It’s simply equal to the amount of your winnings for the year. Whether you actually came out behind for the year is irrelevant. Let’s say you spent a total of $500 on CT Lottery tickets over the course of the year and won $50. Even though you actually lost $450, you could only deduct $50 of that because you can’t deduct more than you received in winnings for the year. Also, for most people, the standard deduction is far more than $50, so you’d be better off skipping this altogether.
If you do opt to itemize your deductions, you’ll need Schedule A of your Form 1040. Gambling losses go on Line 28. Keep detailed records of all your activity like bank statements and receipts. If you’re part of a casino loyalty program, their annual statements can be very helpful here. A final thing to remember is that you can’t deduct any gambling-related expenses like food or hotels.
Resources for taxpayers in CT
If you have general questions about taxes when it comes to gambling in CT, the CT Dept. of Revenue and the IRS are ready to help you. However, if/when you seek such assistance, it’s important to be prepared. That means having all your W-2G forms, proof of your gambling activity, and personal information ready to go. For help with your state taxes, you can access the DOR’s Taxpayer Advocate program. On the federal level, there are Taxpayer Assistance Center Offices all over the country. For questions more specific to your individual situation, however, enlist the services of a CPA or tax lawyer. Those services provided by the government are not tax preparation services.
Do I have to pay taxes on multi-state lottery games?
Absolutely. As far as the CT DOR and the IRS are concerned, prizes won playing games like Mega Millions or Powerball are no different than any other form of gambling. You would pay and report taxes on those prizes just like you would if you had won them playing a CT-only lottery game.
What do I do if I score a big prize playing the CT Lottery?
In the eyes of the CT DOR and the IRS, a lottery is a form of gambling. If your prize was at least $600, the lottery will send you a W-2G form and withhold part of your winnings in accordance with federal and state law. If your prize is six or more figures, the best thing to do before you claim it is to consult financial and legal professionals. They can come up with ways to minimize your tax liability.
What about non-cash prizes, do I have to pay tax on them?
Yep. Because your financial situation was improved the government wants its cut of that value. So, if you win a boat, car, or trip, that’s taxable income. You won’t have to do any guesswork on how much to pay, though. The entity that grants the prize will give you a 1099 that states the fair market value of the item. On your returns, you would treat that like you would any other 1099 income for the year.