Sweepstakes Casino Winnings Tax in the United States
For most US residents, winnings from sweepstakes casinos are considered regular income and must be reported and taxed as other income in the 1040 tax return form. Learn more about states where sweepstakes casino taxes are not applicable and how to report winnings in states where it’s legally required.Do I Need To Pay Tax on My Sweepstakes Casino Winnings?
It depends on where you live:
- There are 39 states where you must pay taxes on sweepstakes casino winnings according to personal income tax.
- There are 7 states without state income taxes, where you are not obligated to report and pay taxes locally*.
- Then there are 4 states with conflicting information** online where I’ve gone through considerations and options but where you should ultimately consult with a tax professional (especially if you won a large amount).
Tax laws on the state and federal levels are subject to change. If you're unsure, you should double-check with applicable tax agencies to get the latest information. For example, you can reach out to the IRS (Internal Revenue Service) for free to receive more information:
- 1-800-829-1040, 07:00 AM - 07:00 PM Monday through Friday local time.
*If the sweepstakes site is situated in a state where sweepstakes winning tax is applicable, the operator will withhold tax and report it to the IRS according to the company’s local tax laws. A tax credit can be claimed back through an out-of-state tax return.
**We have emailed responsible tax authorities in California, Delaware, New Hampshire, and Pennsylvania to receive official information on tax obligations for sweepstakes casino winnings.
States Where Sweepstakes Casino Winnings are Taxable
If you live in any of the 39 states indicated in the table below, you have to pay taxes on sweepstakes casino winnings according to:
- Sweepstakes casino winnings (prizes) must be reported to the IRS as part of your personal income(1).
- The win amount is added to the rest of your income, and the IRS determines your tax rate based on overall earnings.
- If you win a non-cash prize, such as a car or a an experience, you will be responsible for paying taxes on the fair market value of the prize at the time of receiving it(2).
Alabama | Arizona | Arkansas | Colorado |
Connecticut | Georgia | Hawaii | Idaho |
Illinois | Indiana | Iowa | Kansas |
Kentucky | Louisiana | Maine | Maryland |
Massachusetts | Michigan | Minnesota | Mississippi |
Missouri | Montana | Nebraska | New Jersey |
New Mexico | New York | North Carolina | North Dakota |
Ohio | Oklahoma | Oregon | Rhode Island |
South Carolina | Tennessee | Utah | Vermont |
Virginia | West Virginia | Wisconsin |
States Where Sweepstakes Casino Winnings are Non-Taxable
If you live in any of the following seven states, you don’t have to pay taxes on sweepstakes casino winnings in the state where you reside.
States with no personal state income tax:
- Alaska(3)
- Florida(4)
- Nevada(5)
- South Dakota(6)
- Texas(7)
- Washington(8)*
- Wyoming(9)
In cases of sweepstakes casinos operating out of another state where taxes are applicable, the operator will withhold tax on winnings according to state laws. For example, if you play in a sweepstakes casino in New Jersey, you should file an out-of-state New Jersey tax return to get the withholding back as a tax credit from New Jersey (assuming you don’t owe any tax).
*Sweepstakes casinos are illegal according to Washington state laws(10).
States With Conflicting Information About Tax Obligations
There is conflicting information about sweepstakes winning tax in the following four states:
- California
- Delaware
- New Hampshire
- Pennsylvania
Most sites report that sweepstakes casino winnings are non-taxable in California, Delaware, New Hampshire, and Pennsylvania because gambling winnings are not taxable there.
However, sweepstakes casinos are not considered gambling (according to consideration, prize, and chance) or a lottery.
The background is complex terminology and business practices, which create ambiguity regarding tax obligations. Below, I’ll go through key considerations. If you need information from a trusted professional, it’s advisable to contact a tax consultant.
Gold Coins and Sweepstakes Create Complexity for Tax Purposes
Key considerations about sweepstakes casino business models that create ambiguity for tax reporting:
- Gambling winnings must be reported on your tax return and are fully taxable by the IRS in most state governments.
- An activity must include “consideration, prize, and chance” to be considered gambling.
- Sweepstakes casinos are “no purchase necessary, " eliminating consideration and gambling classification.
- Sweepstakes casinos use virtual coins, gold coins and sweepstakes coins (SC) for gaming and prize redemptions.
- Sweepstakes coins can be redeemed for gift prizes and cash prizes.
- Operators describe sweepstakes coins as valueless, but they can be redeemed for gift prizes and cash prizes, often at a 1:1 dollar value.
- Since sweepstakes coins can be redeemed for cash and gifts, it creates ambiguity because cash and noncash prizes can be taxable as personal income.
Since sweepstakes coins have practical value in that they can be redeemed for cash and gifts, this duality can influence how the IRL views the transaction regardless of an operator’s claim that SC is worthless.
This means that the IRS may classify sweepstakes casino winnings as prize winnings where amounts must be reported and taxed as personal income based on the full value of the prize (for prize money and/or gift prizes).
“Considering the ambiguity of sweepstakes casinos and taxes, the conflicting information online, I advise California, Delaware, New Hampshire, and Pennsylvania residents to consult with local tax agencies and hire a tax professional in case of larger sweepstakes winnings. I have contacted responsible tax authorities in these states and asked for clarification. I will update this information once I have more insights. Another thing you can opt for is to simply report sweepstakes casino winnings as gambling income, Uncle Sam likely won’t argue with you, and you’ll have your ass covered.”
Patrik Lidin, Sweepstakes Casino Expert
IRS Rules About Taxes on Cash Prizes and Noncash Prizes
- Cash Prizes: If you receive a cash prize, including sweepstakes, regardless of the amount, it should be reported on your individual tax return form and taxed according to your overall earnings at variable tax rates that will differ in each situation.
- Noncash Prizes: The IRS mandates that noncash prizes also be reported as taxable income. The fair market value of the prize must be declared as "other income" on the recipient’s tax return and taxed according to overall earnings at variable tax rates that will differ in each situation.
How to Report Taxes Sweepstakes Casino Winnings
Regardless of whether the site operates on US soil or offshore, you’re obligated to report all winnings derived from sweepstakes casino sites as income.
Reporting Federal Taxes on Sweepstakes Winnings
- If you win, you’re required to pay taxes on prizes won.
- Prizes over $600 are considered miscellaneous income.
- US sweepstakes casinos will report the winnings and issue a 1099-MISC(12) form if you win over $600 for personal tax reporting purposes.
- Prizes include gifts, and you must identify the value of the gift prize according to the approximate retail value based on the fair market value at the time of obtaining it.
- In some cases, the operator will request a filled-out W-9 form(13), on which you submit your Tax Identification Number (TIN) or Social Security Number (SSN).
- The winning total value should be reported on the “Other income” line of your 1040 US Individual Income Tax Return form(14).
If you play in an offshore sweepstakes casino, the operator won't issue tax forms or report your winnings. However, you are still obligated to produce applicable forms and report them as taxable income(11) for the year the money/prizes were received.
Keep in mind that prize money from sweepstakes casinos may potentially put your personal income earnings in a higher tax bracket. Whatever percentage you are taxed on your regular income will apply to the money/prizes you receive.
Itemization and Tax Deductions on Sweepstakes Casino Winnings
Since operators can report your winnings to the IRS, you can also claim losses through itemized deductions.
If you win more than your standard deduction and lose around the same amount you can opt to deduct that amount up to your winnings by itemizing your deductions. Itemized deductions are made in Schedule A of the 1040 form for individual income tax returns(15).
“You should keep copies of statements from bank cards, payment providers, and sweepstakes casinos to prove expenses. Where a statement is unavailable, you can complement it with screenshots. Better safe than sorry!”
Patrik Lidin, Sweepstakes Casino Expert
FAQ Sweepstakes Casino Taxes
Prize money is considered any money received from sweepstakes casino redemptions and is generally taxed by the IRS and should be reported as “Other income” in the 1040 tax return form. This includes gift prizes where the fair market value of the prize is declared.
Offshore sweepstakes casinos typically don’t report or issue tax forms, but you are still legally obligated to report winnings to the IRS.
Sweepstakes casino winnings are not taxed in Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming because these states have no personal income tax.
Since sweepstakes casinos are not considered gambling outside of Michigan and Washington, a W-2 G form(16) is not required unless you opt to report your sweepstakes winnings as gambling winnings.
Resources & Sources
- Ordinary income tax rate apply to the prize money received, accessed on October 2, 2024, <https://allisonsoares.com/blog/does-prize-money-get-taxed/>
- ITA tool from the IRS to understand if a gift prize is taxable or not, accessed on October 3, 2024, <https://www.revenue.pa.gov/FormsandPublications/PAPersonalIncomeTaxGuide/Pages/Gambling-and-Lottery-Winnings.aspx>
- Personal state income tax in Alaska, accessed on October 1, 2024, <https://www.commerce.alaska.gov/web/dcra/officeofthestateassessor/alaskataxfacts.aspx>
- Personal state income tax in Florida, accessed on October 1, 2024, <https://www.stateofflorida.com/taxes/>
- No state income tax for individuals in Nevada, accessed on October 1, 2024, <https://tax.nv.gov/about-nevada-department-of-taxation/income-tax-in-nevada/>
- South Dakota is one of seven states that does not impose a state income tax, accessed on October 1, 2024, <https://dor.sd.gov/individuals/taxes/>
- As of 2019, the Texas State Constitution expressly forbids levying an income tax on individuals, accessed on October 1, 2024, <https://businessintexas.com/why-texas/taxes-incentives/taxes/>
- Washington state does not have a personal income tax, accessed on October 1, 2024, <https://dor.wa.gov/taxes-rates/income-tax>
- Wyoming does not collect personal income tax, accessed on October 1, 2024, <https://www.findlaw.com/state/wyoming-law/wyoming-personal-income-tax-laws.html>
- Illegal status of sweepstakes casinos in Washington, accessed on September 30, 2024, <https://app.leg.wa.gov/RCW/default.aspx?cite=9.46.0237&pdf=true>
- Types of taxable income per IRS, accessed on October 4, 2024, <https://www.irs.gov/filing/taxable-income>
- IRS information about the 1099-MISC form, accessed on October 4, 2024, <https://www.irs.gov/forms-pubs/about-form-1099-misc>
- IRS information about the W-9 form, accessed on October 4, 2024, <https://www.irs.gov/forms-pubs/about-form-w-9>
- IRS information about the 1040 form, accessed on October 4, 2024, <https://www.irs.gov/forms-pubs/about-form-1040>
- IRS information about itemized deductions, accessed on October 1, 2024, <https://www.irs.gov/forms-pubs/about-schedule-a-form-1040>
- IRS information about the W-2 G form, accessed on October 3, 2024, <https://www.irs.gov/forms-pubs/about-form-w-2-g>