How Much Are Gambling Winnings Taxed In Kentucky?

Just like in other states, gambling winnings are considered taxable income in Kentucky.

There are lots of ways to gamble legally in Kentucky, including horse race wagering, playing the Kentucky Lottery, and now sports betting. That means more chances to win, and you want to be sure you know how to go about fulfilling your legal obligations when it comes to Kentucky gambling taxes.

If you’re seeking information on KY gambling taxes, look no further. This page contains all you need to know about paying federal and state income taxes on gambling winnings in Kentucky.

Do I have to pay taxes on gambling winnings in Kentucky?

Yes. Any gambling winnings you realize in Kentucky are considered income by every relevant taxing authority in the state (and the United States). You are bound by law to report your gambling winnings and pay taxes on them much as you do any other income, and we strongly recommend you comply with both state and federal tax law to the letter.

There’s no grace amount in the tax code, either. Even a win of a single dollar is subject to taxation. It is true that smaller wins are less likely to draw the attention of the Internal Revenue Service or the Kentucky Department of Revenue. But there’s no guarantee, and the smart decision is always to report and pay taxes, no matter how small the win. It’s the total amount of your winnings in a given year that matters, anyway, but we’ll discuss that further below.

Make it a habit, then, to keep track of any gambling winnings you happen to enjoy over the course of the year, whether they’re from betting on the horses, playing historical horse racing machines, playing the lottery, betting on sports or other legal forms of gambling. Then, prepare to include those winnings as income when reporting both your federal and state taxes.

How to pay federal taxes on gambling winnings in Kentucky

Let’s deal with the federal taxes first. As mentioned, when it comes to taxes on gambling winnings, the main question the IRS will have concerns the aggregate amount you win from gambling during a calendar year, rather than what you win from any one trip to the track or gaming hall. As far as what you have to do to report your gambling winnings, it should come as no surprise that there are some forms for that.

Reporting gambling winnings to the IRS

The first thing to do is fill out a Schedule 1. This form, entitled Additional Income and Adjustments to Income, is where you submit reports of income you earned outside of your regular employment. As you’ll see from the form, there is a wide range of sources for additional income that you can choose, and “Gambling” appears as Item 8b.

On this line, enter the amount of your gambling winnings, rounded to the nearest dollar. You should also enter any other sources of income you have, then tabulate the entire total of both Line 8 and the other lines in the last box.

Once you’ve completed the Schedule 1, put it aside in a safe place. You’ll need to attach it to your IRS Form 1040. This form should be familiar to you, as it is the standard income tax return that you fill out each April.

On the 1040, put the total from your Schedule 1 onto Line 8. Once you’ve done so, your gambling winnings are now eligible to be taxed as part of your annual income.

What if I booked a gambling loss over the year?

There’s no guarantee that you’re going to show a win over the course of a calendar year if you’re gambling. In fact, it’s mathematically more likely that you’ll come out of your activities a few dollars shorter.

In terms of federal taxes, there’s some good news and bad news about your gambling losses. The good news is that you can deduct your losses on your return against your taxable income. The bad news is that it’s a bit tricky to do so.

For one thing, you have to have an accurate record of all the times that you went gambling throughout the year. With those records in hand, you should fill out IRS Form Schedule A, which is the form for listing itemized deductions. Specifically, you should enter the sum total of your losses on Line 16 of your Schedule A, which is where you list ‘Other Deductions.’

If you choose this option, you should also know that you are rendering yourself ineligible for the standard deduction that you would normally take. Claiming gambling losses as deductions means that you’ll have to itemize all of your deductions individually.

Note that you can only deduct up to the same amount as you claim for gambling winnings. The best thing you can do is make your taxes on gambling zero. You cannot use gambling losses as a way to reduce your regular taxable income.

Know as well that only the losses and costs you incurred directly from your gambling are eligible for deductions. For example, travel expenses or the cost of food at a gambling venue are not eligible to be reported.

What if I score a big gambling win?

As we suggested earlier, small wins are unlikely to draw the attention of the federal taxman. However, big wins are a bit harder to ignore. In fact, gambling providers in Kentucky are required by law to do two things on any individual wins that equal or exceed $5,000.

In that case, the provider will first withhold 24% of your winnings as an advance payment to the IRS. It will also issue a Form W-2G to you as a record of both the win and the amount withheld. To claim a win of this size, you’ll have to show two forms of identification and give your Social Security number to the gambling provider.

You may also receive a Form W-2G if you achieve certain game-specific winning criteria. The federal government mandates that, even though there won’t be any withholding necessarily, you still receive a Form W-2G if you:

  • Win more than $1,200 on a historical horse racing machine.
  • Win more than $600 on other types of gambling where the winnings are more than 300 times the amount wagered.

In these cases, you are strongly encouraged to report your winnings on your taxes. After all, even though no tax has been collected, the IRS still has a definitive record of your win. We’re telling you to report all gambling winnings, but failing to report gambling winnings of which the IRS already has a record is obviously not recommended.

What if I’m missing a Form W-2G?

Things happen. Gambling providers are supposed to issue a Form W-2G to you, but they may fail to do so. Alternatively, you may have been so excited about your win that you misplaced your copy. In either case, here’s what to do:

  1. Call or visit the place you gambled. They should have their own copy on file and should have no problem issuing you a replacement copy.
  2. Call the IRS. The IRS may be able to give you information about your form, although the sheer volume of forms that the agency has to process makes this step less appealing than Step 1.
  3. If neither step works, try to report the income as accurately as you can as part of your income tax submission.

Don’t make the mistake of thinking that if you don’t receive a Form W-2G, you don’t have to report the win. You’re still obligated to do so, whether or not you receive the form.

How to pay state taxes on gambling winnings in Kentucky

After you’re finished paying off Uncle Sam, it’s time to turn your attention to the people in Frankfort. Here’s what to do about your state income taxes when you have gambling winnings in Kentucky.

Reporting gambling winnings to the Kentucky Dept. of Revenue

The good news about reporting your gambling winnings to the State of Kentucky is that there’s no extra form you have to fill out. You begin your Kentucky return with your federal taxable income total. When you calculate your overall income, that amount should already reflect your gambling winnings.

Furthermore, despite some conflicting information floating around the internet, you don’t have to separate your gambling winnings or pay anything extra on your state income tax. We confirmed with the Kentucky Department of Revenue that all income is taxed the same. As long as you faithfully included your gambling winnings as part of your federal taxable income above, you should be good to go.

Additional resources on Kentucky gambling taxes

When it comes to taxes, the best places to go for additional information are the taxing authorities themselves. For Kentuckians, you should direct your questions either to the Internal Revenue Service or the Kentucky Department of Revenue. Here are the relevant links for doing so:

As Ben Franklin famously said, the only sure things in life are death and taxes. That’s certainly true for gambling winnings. As painful as it is to send a portion of your windfall out the door, the alternative is much worse. Make sure to keep good records and be diligent about filing your taxes honestly and appropriately.

FAQ about taxes on gambling winnings in Kentucky

Yes. When you win money playing the Kentucky Lottery, those winnings are taxed in the same manner as any other type of income. You will need to report lottery wins on both your federal and state income tax returns.

It is quite common for people to score a gambling win as part of a group, particularly when playing the lottery. In particular, families, friends and coworkers often pool their money together for lottery drawings with big jackpots. In some cases, the joint purchases have resulted in those big wins. It’s important to know what to do if you make a big score as part of a group with regard to your taxes.

As usual, there’s a form for that. IRS Form 5754, the Statement by Person(s) Receiving Gambling Winnings, is the one to use. One person in the group will have to be the person directly receiving the winnings, but other members of the group can fill in their information below and indicate their share of the proceeds. After the form is complete, it should go back to the venue where the prize was won such as the racetrack, the Kentucky Lottery, or wherever everyone went to play. Then, be sure to claim your portion of the prize on your income taxes as indicated above.

Some gambling outlets offer special contests or giveaways where they award you with non-cash prizes. If you happen to go on a game show, for instance, you could come home with a heap of items and no cash. You must pay taxes on the cash value of the prize as if you won an equivalent amount of cash. That means whatever the value of the car, the trip, or whatever you’ve won is, you’ll have to claim it as if you received the same amount of income as cash.

Depending on the value of the prize and your annual income, the tax bill might be beyond your capacity or desire to pay. In that instance, you’ll need to ask the prize-granting entity if they can award you the equivalent cash instead. If not, you may consider walking away from claiming the prize. As nice as it would be to get a new car, you don’t want to end up putting yourself in a worse financial position than if you’d never won it in the first place.