Gambling Winnings

Cash winnings are included in federal gross income and therefore must be included in Massachusetts gross income. In addition to cash winnings, gambling winnings also include the fair market value of non-cash prizes such as cars, houses, and trips. 

Reporting of gambling winnings

Cash winnings include:

  • horse racing, dog racing, jai alai, and other wagering transactions;
  • sweepstakes, wagering pools, and lotteries;
  • bingo, keno and slot machines;
  • poker tournaments, including casinos.
  • raffles or any other events of chance

Form W-2G: Certain Gambling Winnings : 
 Form W-2Gs are issued giving the full amount of gambling winnings received during the year.

Using an Efile Application and the Reporting of Gambling Winnings:
When using an Efile application, taxpayers will be notified if they did not report their gambling winnings, or if the amount they reported does not match DOR records. If taxpayers indicate that they did not have any winnings, the system will allow them to proceed. However, their refund will be held up and a letter will go out requesting taxpayers to submit documentation to verify the correct amount.

Lottery Winnings

Winnings from the Massachusetts State Lottery and non-Massachusetts lotteries are included in federal gross income and therefore must be included in Massachusetts gross income.

Reporting of lottery winnings

Form W-2G: Certain Gambling Winnings:
Form W-2Gs are issued giving the full amount of lottery winnings received during the year.

State and Federal Thresholds for Withholding of Lottery Winnings:
 The state threshold for withholding of tax on lottery winnings is $600. The federal threshold for withholding on winnings remains at $5,000.

Lottery Intercepts:
 Current law requires that the State Lottery Commission check information furnished to it by the Child Support Enforcement (CSE) Division of the Department of Revenue before paying out any lottery prize in excess of $600, and to pay the winnings to CSE to the extent that the winner has outstanding child support obligations.

The new law extends this treatment to tax obligations, but gives priority in the distribution of claims to the satisfaction of child support obligations. If the winner owes past-due child support or a past-due tax liability, the Lottery Commission must notify the Commissioner of the winner's name, address and social security number.

Order of Disbursements, the Lottery Commission must disburse:

  1. statutory state and federal tax withholding;
  2. after statutory withholding, the Commission must disburse to the Commissioner the full amount of the prize or portion of the prize that satisfies any past-due child support obligation;
  3. if funds remain available, the Commission must disburse to the Commissioner the full amount of the prize or portion of the prize that satisfies any past-due tax liability;
  4. the Commission must disburse to the winner only that portion of the prize, if any, remaining after these liabilities have been satisfied.

Using an Efile Application and the Reporting of Lottery Winnings:
When using an Efile application, taxpayers will be notified that they did not report their lottery winnings, or that the amount they reported does not match DOR records. If taxpayers indicate that they did not have any winnings, the system will allow them to proceed. However, their refund will be held up and a letter will go out requesting taxpayers to submit documentation to verify the correct amount.

DOR and Lottery Commission Match:
DOR routinely matches the amounts in Mass Form 1, Line 8a or 1-NR/PY, Line 10a with files from the Lottery Commission.

Also see: Correction of Return Assessment Based on Third Party Information

Gambling and Lottery Losses

Losses would occur when:

  • the aggregate amount paid to gamble exceeds total gambling winnings; or
  • the aggregate cost of lottery tickets exceeds total winnings from such tickets.

Federally, losses up to winnings may be claimed as an itemized deduction on U.S. Form 1040, Schedule A.

For Massachusetts purposes, losses up to winnings are not deductible even if they may be claimed as an itemized deduction on U.S. Form 1040, Schedule A. (Exception -see Gambling Activities that Constitute a Trade or Business.

Massachusetts Adjustment for Cost of Winning Tickets:
 Massachusetts does allow the cost of any winning ticket or chance to be deducted from the winnings received from such ticket or chance.

 Example #1 to Illustrate Mass vs. Federal Reporting of Gambling Winnings and Deductions:
If a taxpayer purchases one ticket for the 3rd race at the Wonderland Dog Track in the amount of $5 and wins $500, the taxable amount to be reported on the Massachusetts tax return is $495 (winnings of $500 less the cost of the winning ticket of $5.00.) Even if the taxpayer purchases other tickets during the year totaling $75, the amount reported to Massachusetts is still $495. For federal purposes, the winnings of $500 are reported on the 1040, Line 21, and the cost of all tickets, $80 may be claimed as losses on Schedule A under Other Miscellaneous Deductions.
 

 Tickets:Cost:Winnings:
Winning ticket$5$500
Other tickets:$75$0
Totals:$80$500

 
Federal 1040:

  • Line 21 = $500
  • Schedule A, Miscellaneous Deductions = $80

Mass Form 1:

  • Schedule X, Line 3 = $495 ($500 - $5, cost of winning ticket)
  • Cannot deduct the other costs of $75 since there were no winnings from these tickets

Form W-2G:

  • Line 1. Gross winnings = $500
  • Line 2. Federal income tax withheld? No since threshold is $5,000 of winnings
  • Line 14. State income tax withheld? No since threshold is $600 of winnings

Example #2 to Illustrate Mass Withholding Requirements on Massachusetts State Lottery Winnings:
If a taxpayer purchased one ticket in the amount of $10 for the Massachusetts state lottery and won $900, the taxable amount to be reported on the Massachusetts tax return is $890. Even if the taxpayer purchases other lottery tickets during the year totaling $930, the amount reported to Massachusetts is still $890.

For federal purposes, the winnings of $900 are reported on the 1040, Line 21, and the losses up to the amount of winnings, $900, may be claimed on Schedule A under Other Miscellaneous Deductions; the remaining $40 may not be claimed.
 

 Tickets:Cost:Winnings:
Winning ticket$10$900
Other tickets:$930$0
Totals:$940$900


Federal 1040:

  • Line 21 = $900
  • Schedule A, Miscellaneous Deductions = $900

Mass Form 1:

  • Line 8b = $890 ($900 - $10, cost of winning ticket)
  • Cannot deduct the other costs of $930 since there were no winnings from these tickets

Form W-2G:

  • Line 1. Gross winnings = $900
  • Line 2. Federal income tax withheld? No since threshold is $5,000 of winnings
  • Line 14. State income tax withheld? Yes since threshold is $600 of winnings


Example #3 to Illustrate Federal and Mass Withholding Requirements on Massachusetts State Lottery Winnings:
If a taxpayer purchased multiple Massachusetts lottery tickets and won $6,500, the only amount that may be deducted is the total of the cost of tickets that generated the $6,500 in winnings. The taxable amount to be reported on the Massachusetts tax return is $6,475 ($6,500 less the cost of the 3 winning ticket amounts of $25.)

For federal purposes, the winnings of $6,500 are reported on the 1040, Line 21, and the losses of $955 may be claimed on Schedule A under Other Miscellaneous Deductions.
 

 Tickets:Cost:Winnings:
Winning ticket$5$300
Winning ticket$10$700
Winning ticket$10$5,500
Other tickets:$650$0
Totals:$675$6,500


Federal 1040:

  • Line 21 = $6,500
  • Schedule A, Miscellaneous Deductions = $675

Mass Form 1:

  • Line 8b = $6,475 ($6,500 - $25, cost of winning tickets)
  • Cannot deduct the other costs of $650 since there were no winnings from these tickets

Form W-2G:

  • Gross winnings = $6,500
  • Federal income tax withheld? Yes since threshold is $5,000 of winnings
  • State income tax withheld? Yes since threshold is $600 of winnings

Gambling Activities that Constitute a Trade or Business

Massachusetts adopts the deductions permitted under section 62 of the Internal Revenue Code ("Code"), with certain modifications. The deductions allowed under the Code include those deductions that are attributable to a trade or business. In particular, the Code allows a deduction for losses from wagering transactions to the extent of wagering gains. Thus, a Massachusetts taxpayer may deduct wagering losses to the extent of winnings, but only if the wagering activities of the taxpayer constitute a trade or business.

Professional Gambling:
In the context of professional gambling, determining whether a taxpayer is engaged in a trade or business "requires an examination of the facts in each case. If one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business within the meaning of the statutes.

The determination of whether a taxpayer is engaged in a trade or business remains one of facts and circumstances. However, in determining when the gambling activities of a taxpayer constitute a trade or business, the Commissioner will consider a set of factors. These factors are not exclusive, and are meant to provide illustrative guidance to taxpayers. The burden of proof rests with the taxpayer claiming to be a professional gambler.

The following factors will be considered:

  • gambling activities are entered into and carried on in good faith for the purpose of making a profit;
  • gambling activities are carried on with regularity;
  • gambling activities are pursued on a full-time basis, or to the fullest extent possible if taxpayer is engaged in another trade or business or has employment elsewhere;
  • gambling activities are solely for the taxpayer's own account and taxpayer does not function as a bookmaker;
  • taxpayer maintains adequate records, including accounting of daily wagers, winnings and losses; the extent and nature of taxpayer's activities which further the development of a gambling enterprise; and
  • taxpayer claims deductions associated with the conduct of a trade or business for gambling-related expenses.

Where to Report on Original Tax Return; What to Enclose:

  • For gambling activities that constitute a trade or business, enter net amount on Form 1, Line 6 or Form 1-NR/PY, Line 8. Amount is from Mass. Schedule C, Line 31 or 33; enclose Mass and U.S. Schedule C, or C-EZ, or U.S. Schedule F. If information to be reported on Mass. Schedule C is no different than that reported on the Federal schedule, submit Federal schedule and write on the top "No Massachusetts Differences."
  • For gambling winnings, Massachusetts and out-of-state - the amount included on U.S. Form 1040, Line 21 must be entered on either Mass Form 1 or 1-NR/PY, Schedule X, Line 3. Do not enter less that "0." The price of the winning ticket may be deducted. Losses claimed as itemized deductions on U.S. Form 1040, Schedule A are not deductible under Mass law.
  • For Massachusetts state lottery winnings - the amount included on U.S. Form 1040, Line 21 must be entered on either Mass Form 1, Line 8b. or Form 1-NR/PY, Line 10b. The price of the winning ticket may be deducted. Losses claimed as itemized deductions on U.S. Form 1040, Schedule A are not deductible under Mass law.
  • For out-of-state lottery winnings - the amount included on U.S. Form 1040, Line 21 must be entered on either Mass Form 1 or 1-NR/PY, Schedule X, Line 3. Do not enter less that "0." The price of the winning ticket may be deducted. Losses claimed as itemized deductions on U.S. Form 1040, Schedule A are not deductible under Mass law.

Part-year residents are taxed on gambling and lottery winnings received as a Massachusetts resident.
Nonresidents are taxed on gambling and lottery winnings from Massachusetts sources.

Documentation to Submit with Abatement/Amended Tax Return:

  • Corrected Form W-2G, Certain Gambling Winnings;
  • Documentation to substantiate the correct winnings.

Massachusetts References:

Federal References:

  • I.R.C. §§ 61; 62(a)(1); 165(d)
  • Commissioner v. Groetzinger, 480 U.S. 23 (1987)
  • I.R.S. Rev. Proc. 77-29

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