All gambling winnings (even non-cash ones) are considered income by the US government. And when tax time rolls around, it’s important to remember that income is taxable by both state and federal governments – sometimes even local jurisdictions.
Almost all Maryland gambling winnings count as taxable income
Taxable income can come from winnings earned from playing slot machines or blackjack at a casino, hitting on a long-odds horse at the racetrack or playing the Maryland Lottery. All winning bets made via the newly launched Maryland online sports betting apps and through a retail sportsbook are also subject to taxation.
Heck, Uncle Sam even considers winning a fantasy football league against friends or coworkers (and even raffle wins!) to be taxable gambling winnings.
Whichever you cut it, the government still wants its slice of the pie.
How to know if you owe taxes on your win
So, how do you find out how much money you owe in taxes on your Maryland gambling winnings?
First, gather up a list of all of your winnings. Those winnings can come from any of the following and most any variation of:
- Parimutuel wagering pools (i.e., horse racing)
- Sports bets (at a sportsbook or online)
- Lotteries (state and multi-state games)
- Sweepstakes (i.e., raffles and other contests)
- Wagering pools (i.e., NCAA Tournament brackets)
Typically, when you win over a certain threshold of money or value – dependent on the type of wagering – a certain amount of the payout is automatically withheld for taxation reasons. This amount can vary but is typically 25% of the winnings.
If certain pertinent information is missing when claiming winnings, like the winner’s Social Security number, the prize grantor could withhold up to 28% of the winnings.
With these larger sums, the withholdings could cover your tax liability altogether, though that’s never guaranteed.
For instance, Maryland law only requires gambling entities to withhold 9.25% of gambling winnings over $5,000 from residents — 7.5% from non-residents.
Federal taxes on gambling winnings
Sportsbooks, casinos and all gambling facilities should provide a Federal Form W-2G, Certain Gambling Winnings to the individual who earned those winnings.
It is the responsibility of the prize grantor to ensure that Form W-2G is issued and completed. It is then the sole responsibility of the recipient to report their earnings after that.
Form W-2G tells both the prize winner and the IRS how much was won gambling during a tax year. It also shows how much that entity withheld from that person’s winnings for tax purposes.
Gambling winnings, which are based on the cumulative amount accrued throughout the entire calendar year, are taxable when:
- The winnings (including the wager amount) are $1,200 or more from a bingo game or slot machine
- The winnings (not including the wager amount) are $1,500 or more from a keno game
- Winnings (not including the wager or buy-in amount) are more than $5,000 from a poker tournament
- The winnings (except winnings from bingo, slot machines, keno and poker tournaments), not including the wager amount, are $600 or more and at least 300 times the amount of the wager
- The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding)
Maryland state taxes on gambling winnings
Gambling operators don’t always issue a Form W-2G to winners of smaller sums, but it’s important to report and pay taxes on those earnings nonetheless. Winners can do so using Form 502D, Declaration of Estimated Tax.
This must be done within 60 days of receiving winnings to avoid delinquency, and the amount due is explained on the form.
For winnings of less than $500, there’s no 60-day payment requirement. It can be paid with taxes the following year, but detailed records should be kept at the time.
Levels of graduated income tax
The amount someone pays on those winnings depends on the amount of ordinary income they’ve made for the year from all pertinent sources. Maryland has three levels of graduated income tax that are identical regardless of filing status.
- $0 to $1,000: 2%
- $1,001 to $2,000: $20 plus 3% of the excess over $1,000
- $2,001 to $3,000: $50 plus 4% of the excess over $2,000
Maryland then has five more levels that vary depending on how someone files. If filing as single, as married filing separately, as a fiduciary, or if someone else can claim you as a dependent, this is the rest of the tax schedule:
- $3,001 to $100,000: $90 plus 4.75% of the excess over $3,000
- $100,001 to $125,000: $4,697.50 plus 5% of the excess over $100,000
- $125,001 to $150,000: $5,947.50 plus 5.25% of the excess over $125,000
- $150,001 to $250,000: $7,260 plus 5.5% of the excess over $150,000
- $250,001 and over: $12,760 plus 5.75% of the excess over $250,000
If married and filing jointly, filing as head of household or you are a widow/widower in certain circumstances, this is your tax schedule:
- $3,001 to $150,000: $90 plus 4.75% of the excess over $3,000
- $150,001 to $175,000: $7,072.50 plus 5% of the excess over $150,000
- $175,001 to $225,000: $8,322.50 plus 5.25% of the excess over $175,000
- $225,001 to $300,000: $10,947.50 plus 5.5% of the excess over $225,000
- $300,001 and over: $15,072,50 plus 5.75% of the excess over $300,000
Local taxes on Maryland gambling winnings
In Maryland, 23 counties as well as the city of Baltimore also charge local income tax in addition to what is owed to the state.
These local rates apply to where someone lives, not to where the earnings were won.
That local income tax information should be reported on Form 502. To learn more about a specific tax rate, contact the local municipality or the comptroller of Maryland.
Instructions for reporting winnings for Maryland residents
Maryland residents should use Form 502 to report gambling income and any amounts withheld or already paid during the year.
For residents with IRS Form 1040 and all of their W-2G forms, this should be easy. Transfer your adjusted gross income amount — which already includes the gambling winnings for the year — from the 1040 to Line 1 of the 502.
Then, add up all the totals in Box 4 of the W-2Gs that show MD or Maryland in Box 13. Include that total with all other Maryland tax withheld for the year on Line 40 of the 502.
There are two important things to remember when doing this:
- If Box 13 on any of the W-2Gs denotes any state other than MD, do not include the sums in Box 4 from those forms in this total
- Copies of all the W-2Gs included in this total of Form 502 must be attached
This completes reporting obligations for the state of Maryland.