Key Takeaways
- Casinos tend to pay winnings of less than $25,000 with cash or check.
- Larger winnings may be paid as a lump sum or periodically as an annuity.
- Some casinos don’t give gamblers an option for how winnings are paid.
- If you receive an annuity, you can convert it to a lump sum by selling it — but you will not receive the full value of your winnings.
Receiving Casino Winnings
Winning big at the casino can come with a number of tax implications and financial decisions, specifically when choosing the best payout method. Typically, winnings are placed in a structured settlement providing consistent payments for a determined period of time. But what if you want the winnings now? In this case, winners can choose to sell a portion or all of their casino settlement in exchange for a lump sum of cash.
While receiving a one-time lump sum allows winners to address bigger financial emergencies, including paying for college tuition or medical expenses, receiving a lump sum payment can also negatively influence spending and saving habits. In addition, lump sum payments are taxed as ordinary income, though you only have to pay them one time.
On the other hand, receiving casino winnings as a structured settlement provides a controlled income stream over a longer period. Payments are not taxed until they are disbursed, allowing for interest to accrue over time. However, this payout option limits the amount of cash a winner receives at one time, especially if additional funds are needed for financial emergencies.
See what your future payments could be worth in cash
Read More: How to Find the Present Value of an Annuity
How Do Casinos Pay Out Large Sums of Money?
You’ve just had a lucky night. While you are still in the casino, you will need to provide identification and sign IRS tax forms in order to accept your prize. And then you get your money, right?
Not exactly.
Casinos have various ways of paying winners. Generally, if the winnings are $25,000 or less, winners can choose between cash or check. If the winnings are larger, the options may change depending on the location of the casino and the game gambled upon.
Some games allow for a lump sum disbursement, where the money is paid upfront. Other games disburse winnings through an annuity, where the money is paid in installments. Often, winners have up to 90 days to decide whether they want a lump sum or annuity, though in some cases they are not given a disbursement option, and only a lump sum is offered.
Casino winnings are taxed as ordinary income and can bump winners to a higher tax bracket.
All winnings — specifically from lottery payouts, poker tournaments, horse races and slot machines — are taxable at the federal level, and some may be taxable at the state level, too. Since each state has its own set of regulations for gambling taxes, be sure to pay close attention to the local requirements before filing your next tax return. In addition to state tax, the IRS also taxes gambling winnings. For certain games and for larger winnings, winners will receive IRS Form W2-G from the payer.
No matter the amount, all winnings must be reported on the next tax return. However, the winner will only receive Form W2-G if the earnings meet certain thresholds:
- $600 or more in gambling winnings, except winnings from bingo, keno, slot machines, and poker tournaments, if the amount is at least 300 times your bet
- $1,200 or more from a slot machine or bingo game
- $1,500 or more in keno winnings
- $5,000 or more in a poker tournament
If winnings meet or exceed the above thresholds, the casino will withhold up to 25 percent of your winnings in taxes before disbursing the final amount.
Read More: Reasons for Selling Your Structured Settlement
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Lump Sum vs. Annuity Payments for Casino Winnings
The quickest way to determine how winnings are disbursed is to look at the faces of common slot machines. It will clearly disclose whether the machine is an annuity game or an immediate full-pay win.
If you are given the choice of payout options, it may be wise to consult with a Certified Financial Planner™ professional, tax attorney or certified public accountant to help determine the best decision.
Each payout method comes with its own set of tax implications, including higher interest rates. Choosing how to receive your winnings determines how much you cash in.
Choosing the lump sum option from the casino means settling for cash at a discounted rate of 50 to 60 percent of the total winnings. The lump sum discount rate is determined through either the current prime rate or a rate formulated from U.S. Treasury securities chosen by the licensee.
While this option provides a bulk of cash all at once, winners have to pay taxes on the sum in its entirety the same year it is distributed. However, the taxes are paid only once. This option may work best for those looking to pay off debt or address other immediate financial needs.
Claiming a casino annuity means committing your winnings to a long-term payment plan that can take 20 to 30 years to fully disburse. This guarantees an additional income stream over time. Generally, winnings are paid at the minimum amount annually.
For example, regulations from the Nevada Gaming Control Board stipulate:
- Periodic payments are used for prizes of $100,000 or more.
- If the prize is between $100,000 and $200,000, payments will amount to at least $10,000 annually.
- If the prize is more than $200,000, the annual payments will not be less than 5 percent of the total amount.
However, leaving casino winnings in an annuity sacrifices some of the value of your money.
- Inflation
- Inflation can affect the buying power of payments in a negative way if the dollar substantially drops. The amount you receive this year from the annuity will not be able to buy the same amount of goods years from now.
- Depreciation
- The winnings could be earning interest over time rather than depreciating due to inflation. If you had cash in hand, you could put it in a tax-advantaged and interest-bearing account.
- Limited Access to Cash
- Having cash now enables you to make purchases today, rather than waiting until years down the road.
There are three primary ways you can lose out:
Casino Winnings & Annuity Payments FAQs
Casino winnings are taxed as ordinary income and can bump you into a higher tax bracket. Casinos will typically take about 25% of larger winnings for the IRS before paying you your lump sum. Taking winnings as an annuity over 20 or 30 years may reduce your tax burden and keep you in a lower tax bracket. If your winnings are exceptionally large, it’s best to talk with a tax professional before making a decision.
The IRS has different rules for casual gamblers and those who are in the business of gambling. Typically, if you hit a certain threshold, the casino will take out taxes before paying your winnings. You still have to report all your winnings, but typically don’t have to file a Form W-2G for winnings from table games like craps, roulette and blackjack.
You may not have a choice as to whether the casino pays you with a lump sum or through an annuity. If you have a choice, people interested in a long-term income stream, receiving a larger payout over time or wanting to avoid the tax consequences of a sudden lump sum payment may consider an annuity the better choice.
