Alabama Gambling Tax

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Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.

Casino Winnings Are Not Tax-Free

Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.

By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.

How Much You Win Matters

For federal taxes, lottery winnings are taxed according to the federal tax brackets. Federal tax brackets are progressive, so portions of the winnings are taxed at different rates, and could be as high as 37%. State income taxes vary by location. Some states do not have a state income tax, while others may withhold up to 8.82%. A 24-hour, national hotline which refers problem gamblers to counselors, therapists, and support groups thoughout the state of Alabama. Official state affiliate of the National Council on Problem Gambling. Accepting tax decuctible donations from those who want to help others.

While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:

• $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
  
• $1,500 (reduced by the wager) in keno winnings.
  
• $1,200 (not reduced by the wager) from slot machines or bingo
  
• $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.
  

Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.

Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.

What is the Federal Gambling Tax Rate?

Standard federal tax withholding applies to winnings of $5,000 or more from:

• Wagering pools (this does not include poker tournaments).
  
• Lotteries.
  
• Sweepstakes.
  
• Other gambling transactions where the winnings are at least 300 times the amount wagered.
  

If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.

The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.

It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.

Can You Deduct Gambling Losses?

If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.

The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.

What About State Withholding Tax on Gambling Winnings?

There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.

Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.

State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.

How to Report Taxes on Casino Winnings

You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.

You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.

Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.

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Despite its noticeable lack of a statewide lottery and few commercial casinos, Alabama or the Yellowhammer State as it’s also known, has a booming real money poker and gambling industry. Plus, in May 2015 Alabama government got a lot friendlier with the idea of regulated gambling; a new bill to bring casino games to the state’s racetracks and launch a state lottery was passed by a committee.

The loosening up of Alabama gambling law also takes the state a step closer to regulating online poker. With Alabama government looking to fill a hole in their budget, they’re seriously weighing up the potential online poker and general gambling revenues that they’re currently missing out on.

Back in 2011, the gambling industry in Alabama generated 25 percent more tax revenue than the year before – the largest percentage legal betting revenue gain in the United States. Alabama is still one of the top five states for gambling revenues.

The state’s sudden explosion onto the gambling scene can be directly attributed to the aggression of the state’s only tribal faction, the Poarch Creek tribe. But is the tribe’s increased presence in Alabama’s real cash gambling scene enough to encourage state legislators to abandon their anti-gambling stance and consider an online gambling bill? Well, maybe.

The prospect of regulated iGaming and online poker coming to Alabama this year is a longshot, but once the foundations of a regulated, commercial gambling industry are there, legal online poker becomes a whole heap more likely.

If you’re from The Yellowhammer state and you’re feeling sure of your skill, you might like to try some of our top-rated real money poker sites for 2020.

The Poarch Creek Tribe VS Regulated Commercial Gambling

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Alabama Tax On Gambling Winnings

• 4 The Facts

In the past several years, the Poarch Creek Indians have single-handedly transformed the face of Alabama’s poker and gambling industry.

In 2009, they opened the Wind Creek Casino and Hotel, a destination resort featuring over 1,600 electronic real money gaming machines, and a 160,000 square foot hotel. Then in 2014 they opened a brand new hotel and casino with over 250 rooms and a giant shark tank in the lobby.

Now, in 2020 the Poarch Creek tribe are freaking out about the idea of legalized commercial gambling in the state and a potentially regulated online poker industry. That’s because they’d like to protect their profits and don’t want to lose their complete dominance of the gambling market in Alabama.

In a desperate (and pretty clever) attempt to stop the Alabama government turning to regulated commercial gambling to fill the gap in the state budget, the tribe has put a deal forward. They’re saying, let’s create a pact together between the tribe and the government, which declares that the tribe are the only people allowed to offer regulated gambling in Alabama.

These kinds of deals aren’t unusual but what’s different about this one is that the tribe are offering to pay the government one massive lump sum of over $250 million to cover the next five years, rather than $50 million each year. Because Alabama’s running out of money, this deal obviously seems appealing to state senators.

Can Players from Alabama Play Online Poker?

Yes, you sure can.
Alabama state officials tolerate the presence of tribal casinos not by choice, but by federal mandate. In reality, Alabama is a highly traditional state, historically opposed to gambling in most forms, including real cash poker.

Yet, despite its conservative stance, Alabama does not prevent its residents from playing for real money at online poker websites in 2020. Actually, almost all the US Internet poker sites on our homepage are more than willing to accept real poker players from the Yellowhammer State.

Just create an account with one of our many recommended poker websites, and you too can be gambling real money on the Internet from the comfort of your own home in The Heart of Dixie, Alabama.

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Is Online Poker Legal in Alabama?

The truth is Alabama’s gambling laws are old and out-dated, as well as being massively vague. Right now in 2020 the laws just aren’t specific or modern enough to completely and clearly define Internet poker as illegal.

Plus, never in the history of AL State has someone faced a criminal charge for merely playing online at poker websites.

Instead, it seems Alabama state officials are more concerned with those operating an illegal gambling ring, and not those gambling real money on Internet poker tables in 2020.

Still, Alabama residents are best advised to seek legal advice before creating an account at US-facing online poker websites, if only to gain a better understanding of AL state’s gambling rules and regulations. For now, the following summary of the law should provide you with some insight into real money Texas Hold’em and other legit Internet poker games for 2020:

Real cash gambling, as well as other terms related to gambling, are clearly defined by Alabama state law. By definition, a person engages in gambling if he/she stakes or risks something of value upon the outcome of a contest of chance or a future contingent event not under his/her control or influence, upon an agreement or understanding that he/she or someone else will receive something of value in the event of a certain outcome.

Note that the definition only applies to games of chance. Thus, real money poker players in The Heart of Dixie could conceivably make an argument that they are not engaging in gambling activity by playing online poker in 2015, by definition of the law.

However, way back in 2007 Alabama Justice James Gregory Shaw stated that an offline and Internet poker player’s understanding of the rules or the laws of probability relating to a game of chance does not change the fact that he is playing a game of chance. [3] His statement implies that Texas Hold’em poker would in fact be considered a game of chance and thus would fall under the Alabama state’s blanket definition of gambling.

A person commits the crime of simple gambling if he knowingly advances or profits from unlawful gambling activity as a player. The violation for simple gambling is a Class C misdemeanor. Section 13A-12-21

Promoting gambling, in other words profiting from poker gambling or other betting activities as a non-player, is subject to harsher penalties (Class A misdemeanor).

Because Alabama’s gambling laws are so vague, Section 13A-12-17 Possession of a gambling device, could be read to include a computer used for online gambling.

For more details regarding Alabama’s gambling statues [4] and the state’s 2020 legislative information in general, please refer to our “References” section.

The Facts

The History of Gambling in Alabama

Compared to states where the gambling industry has thrived for decades, New Jersey and Nevada included, Alabama’s legal gambling history seems rather uneventful.

In the days following the American Civil War, the state legalized lotteries. However, due to competition from neighboring states, the lotteries failed to generate much in the way of sustainable real money revenue and were banned. And by 1901, all games of chance, including poker betting, were deemed illegal by the AL state Constitution.

During the Great Depression of the 1930s, Phoenix City went bankrupt, prompting city officials to grant lawful gambling licenses. Unfortunately, organized crime leaders caught wind of this, and began setting up shop. Crime rates rose dramatically, leading to the eventual assassination of an Alabama conservative Attorney General in 1954.

For the next several decades, law authorities cracked down on poker gambling and other betting games and public sentiment towards gambling remained negative until the 1970s. It was then that AL state legalized pari-mutuel betting. Legit real money dog races have remained a somewhat popular mainstay of Alabama culture ever since.

In 1980 charitable bingo gambling was legalized. Eight years later, the federal government passed the Indian Gaming Regulatory Act of 1988, which allowed Indian tribes to be recognized as sovereign nations, and thus exempt from certain state laws. The Poarch Tribe quickly took advantage of this clause by establishing electronic gaming halls in their territories. However, the tribe is not permitted to spread casino style table games in its facilities, including real cash poker.

Regulated Gambling Options in Alabama

Besides the state’s three tribal destination resorts, residents of the state of Alabama can participate in charitable bingo and pari-mutuel wagering but not land based legal real money poker.

Currently in 2020, the state boasts three major dog tracks with legal, regulated pari-mutuel betting (Birmingham Greyhound Racing, Greentrack and Mobile Greyhound Park).

Right now Alabama is one of only seven states in the USA that doesn’t have a state-wide lottery and commercial casinos that include Texas Hold’em poker tables. The good news for poker fans is that thanks to the 2015 gambling bill due to go in front of the full state senate, by this time next year live poker and regulated gaming could be a reality in AL.

Poker players in Alabama can play at many different online poker sites enjoying all of the action they want at any time.

The Future of Regulated Online Gambling in Alabama

Despite its accelerated growth, Alabama’s lawful poker and gambling industry is still quite small even in 2020. And although there is support for legal online poker and regulated gambling, most of Alabama’s state officials would like things to remain the way they’ve always been.

That’s why the general consensus among regulated iGaming advocates is that Alabama’s state legislators are unlikely to pass a bill legalizing Internet gambling and poker websites in 2020 but they are closer to it than they’ve ever been before.

If the Poarch Creek tribe pushes for an online bill, Alabama lawmakers will have to listen but the majority of them are likely to reject any proposals for real money Internet poker sites and real cash casinos.

In the past, experts have also said that the state might even opt out of a federal bill legalizing online gambling, should it be passed. Now in 2020, the senate’s due to look at regulating live gambling and if they approve that it’ll be clear that the government’s softened their position on gambling.

Fun Fact

In 2013, poker playing Professor Corey Harrison of Bessemer, Alabama won the WSOP Event #24 poker tournament ($1,500 No Limit Texas Hold’em). His reward for outlasting a gigantic field of over 1,700 runners would be $432,411 ^[5] in cold-hard real cash.

Harrison has a Ph.D. in cellular molecular biology and is a staunch believer that poker gambling is a game of mathematics and skill.

The Bottom Line

Alabama used to be amongst one of the 10 states in the US that were least likely to pass iGaming legislation, making online real cash poker betting legal. That could all change later in 2020 though, because the state is running out of money and gambling revenues would really help. Plus, when the senate gets the opportunity to vote on a bill regulating live gambling, we’ll all get to see what Alabama’s 2015 position on real cash gambling is.

The perfect combination of circumstances that could lead to the launch of regulated Alabama Internet poker rooms would be; the voters electing liberals, the iGaming market defying expectations and neighboring states such as Mississippi and Georgia passing Internet gambling legislation relating to legit real cash poker websites of their own.

Personally, we don’t think that’s going to happen super soon but with the financial pressures rising in AL, legal online poker and regulated commercial casinos could solve a lot of the governments problems. That’s why we’re saying “Never say never” when it comes to legalized Alabama online poker.

Alabama Gambling Compact

References

[1] ↑Poarch Creeks to open new Wetumpka casino today

[2] ↑Victoryland casino shut down by raid from Ala. AG’s office

[3] ↑Alabama Court Of Appeals

[4] ↑Alabama Legislative Information System Online

[5] ↑Poker playing professor from Bessemer now going for multimillion-dollar payday

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