Like most states, North Carolina counts gambling winnings as income. That means you owe state and federal income taxes on the money you win from gambling.
When it comes to legal gambling in North Carolina, the options aren’t quite as plentiful as you’ll find in some states. The North Carolina Education Lottery is by far the most popular legal form of gambling in the state. Additionally, tribal casinos in North Carolina offer a variety of legal gambling options as well as sports betting. There is also charitable gaming and a few other ways to gamble legally in the state.
No matter the type of gambling, when you win money, you are obligated to pay both state and federal taxes. Read on for everything you need to know about taxes on gambling winnings in North Carolina.
Are gambling winnings taxable in North Carolina?
Yes, North Carolina requires you to pay taxes when you win money gambling. It has its own state tax obligation, and you also have to pay federal taxes on gambling winnings.
There is a prevailing notion that if you win only a small amount gambling, you don’t have to pay taxes on your winnings. Technically speaking, that’s not true in North Carolina, and it isn’t true in most other states, either. While it is perhaps true that a small gambling win might escape the notice of the Internal Revenue Service (or the North Carolina Department of Revenue), that doesn’t mean you aren’t still obligated to pay taxes on it.
The confusion sometimes arises from the fact that gambling providers often don’t withhold taxes on smaller wins, which is not the case if you win big. For example, if you win an especially big poker tournament at Harrah’s Cherokee Resort Casino, Harrah’s will probably withhold some money from your winnings for federal taxes. The same would be true if you won big playing the lottery, where you’ll find money withheld for both federal and state taxes after a big win. We go over the exact thresholds for withholding below.
When the NC Lottery withholds money from your winnings, it also reports your win to the NCDOR and IRS. Casinos will similarly send a report to the IRS when they withhold federal taxes from your winnings. You may think that if no one reports your win, you don’t have to pay taxes on it, but that is not correct.
Incidentally, North Carolina tribal casinos do not withhold money from gambling winnings for state taxes. They will, however, withhold money for federal taxes when the win is large enough.
Regardless of whether someone withholds money from your gambling winnings, you still have the obligation to pay taxes on those winnings. And if someone withholds money at the time you win, you won’t have to pay that tax later. In fact, if the casino or lottery withholds too much, you can get some of that money back when you file.
Bottom line, though, is that you do owe state and federal taxes on gambling winnings in North Carolina.
Paying North Carolina state taxes on gambling winnings
The North Carolina individual income tax rate has changed slightly over the years, but currently (and for the last few years) it has settled at 5.25%. That is a “flat” tax that doesn’t change with the amount of income you report. Some states have a graduated state income tax that increases as an individual’s income goes up, but that’s not the case in NC.
In North Carolina, residents filing singly whose federal adjusted gross income exceeds $10,750 have to file a return and pay state income taxes. Those who are married and filing jointly must file an NC tax return if their combined income exceeds $21,500.
Since gambling winnings count as income, that means those winnings add to the overall total. That also means you must pay the same 5.25% rate on those winnings.
How to report your gambling winnings on your NC tax return
Those who file North Carolina state income tax returns generally use Form D-400.
On Line 6, you will need to enter your “Federal Adjusted Gross Income.” That total should include your gambling winnings that you added to your income when filling out your federal tax return. From there, you’ll enter other amounts for deductions and then use the total to calculate how much state income tax you owe.
Paying federal taxes on gambling winnings in NC
Much as North Carolina considers gambling winnings taxable income, the federal government does the same. Therefore, when you report your income on your federal tax return, you’ll want to include those winnings.
How much federal tax do I owe on my gambling winnings?
Whereas NC has a flat income tax, your federal income tax obligation depends on the tax bracket into which your income places you.
When it comes to individuals, those who make $10,000 or less are in the lowest federal tax bracket, owing 10% on their income. Those who make $500,000 or more are in the highest tax bracket and owe 37%. Your gambling winnings increase your overall income and so could conceivably move you into a higher tax bracket.
The answer, then, to the question of how much federal income tax you have to pay on your gambling winnings depends on your tax bracket. The higher the bracket, the higher the percentage of federal income tax you pay on all your income, including on your gambling winnings.
Receiving an IRS Form W-2G
Sometimes when you win money from gambling, you will receive a Form W-2G from where you won the money. A casino or the lottery might issue you one of these forms, for instance, particularly if you win a considerable amount. The NC Education Lottery often sends such a form to lottery winners.
Whenever you receive a Form W-2G, the IRS also receives a report of your gambling win. The form shows how much money you won and also how much (if any) the casino, lottery or other entity withheld.
As noted, you usually have to win a certain amount before you receive a Form W-2G. Here are the thresholds that typically indicate whether you do:
- $1,200 or more for bingo or slots (not reduced by wager).
- $1,500 or more for keno (reduced by wager).
- $5,000 or more for poker (reduced by wager or tournament buy-in).
- $600 or more (or 300 times your bet) for other types of gambling.
Note that you might not receive a Form W-2G even when you are supposed to. In any case, the form simply tells you how much you’ve won and how much the payer has withheld, and also lets you know that the IRS received the same information.
Using an IRS Form W-2G to fill out your federal income tax return
You’ll see that Form W-2G contains your personal information on the left side, then boxes with figures on the right. Box 1 lists your “Reportable winnings,” which should match the amount you’ve won. Then Box 4 shows “Federal income tax withheld.” If the casino, NC Lottery or other gambling provider withheld any money from your winnings for federal taxes, this is where that amount should appear.
When completing Form 1040, you list your “Other income” on Line 8. That’s where you can list your gambling winnings from Form W-2G. If you receive multiple Form W-2Gs, add up your winnings from all of them and enter the total. If you have other miscellaneous income, you add that there, too. If things get complicated, you can use Form 1040, Schedule 1 to help you add up all of your miscellaneous income (including gambling winnings).
There is also a place on Form 1040 to enter any withholdings such as would appear in Box 4 of Form W-2G. The line for “Federal income tax withheld from” your “other forms” is Line 25c. Again, if you have more than one W-2G, add up the total withholdings from all of them to add here. You want to be sure to report both your winnings and any money that a gambling provider already withheld.
If you are using some sort of tax preparation software, you can simply add these totals where it prompts you, and the program will make the calculations for you.
Do I have to pay tax on North Carolina Lottery winnings?
Yes, you do have to pay tax when you win money playing the North Carolina Lottery. The state-run lottery is the most popular form of legal gambling in the state, and it is therefore especially important for winners to understand their tax obligations.
North Carolina will tax your lottery winnings just like all other income at a rate of 5.25%. The federal government will also tax your lottery winnings as income, but the percentage depends on your income bracket.
Does the NC Education Lottery automatically withhold tax from winnings?
Yes, the NC Lottery will withhold money from your winnings for both state and federal income taxes if you win above a certain amount. The amounts are different for state and federal taxes:
- If you win $600 or more, the lottery will withhold 5.25% of your winnings for state taxes.
- If you win $5,000 or more, the lottery will withhold 24% of your winnings for federal taxes.
Note that for state taxes, you know that the 5.25% is exactly the amount of income tax you owe. That means when you file your state tax return, you’ll report to the NCDOR both your winnings and the amount that the lottery withheld (so you don’t pay income tax on your winnings twice).
For federal taxes, that 24% is an approximation of what you’ll actually owe. If you end up in a tax bracket for which you owe a lower percentage of federal income tax, you’ll get some of that money back. If you are in a tax bracket where your federal income tax obligation is higher than 24%, you’ll owe a bit more in tax. In any case, be sure to report both your winnings and what the lottery withheld when filing your federal income tax return to the IRS.
FAQ about North Carolina gambling taxes
It depends on how much you win. The NCDOR specifically addresses this question in its instructions regarding income filing requirements. Both “part-year” residents and nonresidents who receive income while they are in NC (including via gambling winnings) have to file a North Carolina income tax return if their total gross income exceeds certain thresholds. Those thresholds are the same as for NC residents that we mentioned above: $10,750 for individuals and $21,500 for those who are married and filing jointly.
In practical terms, then, if you aren’t a full-time resident of NC but win money playing the NC Lottery or at one of the casinos, you are only obligated to file a North Carolina income tax return if the amount you win exceeds those minimums.
You may have received a Form 1099-MISC before when earning income for freelance work or other types of employment. Sometimes winning cash or some other item of value from gambling will result in you receiving a Form 1099-MISC as well. As the name implies, the form represents “miscellaneous” income.
You use a Form 1099-MISC much as you do a Form W-2G. Look for Box 3 on Form 1099-MISC, which lists the amount of your other income. Add that amount to any other income, including gambling winnings, you’re reporting on your state and federal tax returns.
No, you cannot deduct gambling losses when filing your NC state income tax return. In 2013, North Carolina passed the Tax Simplification and Reduction Act (HB 998), which increased the standard deduction but eliminated many of the itemized deductions, including deducting for gambling losses. That law went into effect starting in 2014.
North Carolinians can deduct gambling losses on their federal tax returns. If they do, though, they will not be able to take the standard deduction and must instead itemize their deductions.
Yes, you should consider non-cash prizes that you win from gambling much the same as you do cash prizes. Say you enter a raffle and win a new car or a free trip. You’ll need to determine the cash value of the prize and report it just as you would any other gambling winnings.
The law in North Carolina describes both civil and criminal penalties for failure to comply with the state’s tax laws. Depending on your situation, you may have to pay late fees and/or additional interest on the amount of tax due.
Remember, if you win money gambling and receive a Form W-2G, the IRS and NCDOR both receive the same information. You would therefore be making a big mistake not to report those winnings on your tax returns, and you very likely would receive an underreported income notice or an audit. Of course, even if you don’t receive a Form W-2G, you still are supposed to report any gambling winnings as income, so don’t make the mistake of not doing so.