When it comes to online gambling and taxes, it is important for players to realize that they must comply with their local legislation when considering taxes. Such tax laws can be different depending on whether a player lives inside or outside of the European Union. Players may believe that gambling online is completely anonymous and that withdrawals go unnoticed, but this is not the case. To reiterate, it is important to remember that when you gamble online, you are aware and comply with your country’s rules of online gambling taxes. One thing that more often than not confuses players and people who want to start gambling online is whether or not tax needs to be paid on any winnings from bets placed online, as gambling online generates billions of dollars in the form of tax revenues. Casual gamblers must be aware that gambling winnings are fully taxable and should be reported on tax returns. Gambling income can count as winnings from raffles, horse racing, lotteries and casinos. It can also include cash winnings and the fair market value of prizes from such things as cars and holidays or trips.
The taxation of gambling winnings in European countries changed from the year 2012 as the Minister of Finance proposed in his budget speech on the 23rd of February, 2011 that with effect from the 1st of April, 2012 all players must declare all of their gambling winnings that exceed R25,000. The Minister of Finance also stated that these winnings include those derived from National Lotteries, which would further be subject to a final 15 percent withholding tax. There was no indication from the Minister as to how the proposed tax was to be collected, what periods to count for calculation and whether or not losses will be capable of being off-set against winnings. The European Association for the Study of Gambling gives a comprehensive overview of the situation regarding the taxation of winnings derived from gambling and it includes information for all of the 27 different European Union member countries. Findings from the report actually detailed a more than complicated situation. One of the major factors that came out of the report showed that not only are there different rules for each of the countries within the European Union, but there are also different taxation rules for all the different forms of gambling. For example, there are different rules for winnings from casinos to winnings from sports betting or lotteries. Even within individual countries, big differences can exist, e.g. where different rules are applied in different provinces.
One thing that did emerge from the report is that most of the countries within the European Union shows it is actually the supplier that pays tax, and that tax is not a tax on winnings, but instead it is a tax on revenues and profits. There are a few instances where players have to pay the tax, but it is not a pure winning tax, rather income tax as winnings that are regarded as income.
The variation of national approaches to online gambling has also raised other taxation problems. In particular, these problems are how to levy VAT and betting and/or gambling taxes on gambling services that are offered over the internet. An article that appears in the EU VAT Directive foresees a certain exemption within online gambling. The exemption was for betting, lotteries and other forms of gambling that are subject to the conditions and limitations laid down by each individual member state. There are certain games that are not included within this definition, including pinball machines and certain internet games that are subject to VAT, which is then payable by the EU providers in their member state of establishment.
Besides Value Added Tax, there is a betting and gambling tax that applies in many member states. For instance, for online betting and gambling, there are certain member states like the Netherlands that have legislation on taxation. The Netherlands also taxes the prize winners of online games.
The IRS have applied certain rules to casual gamblers. The rules include the winnings derived from gambling that become fully taxable and must be reported on the player’s tax return. They have noted that gambling income includes, but is not limited to, winnings from lotteries, raffles, horse race betting and online casinos. This also includes cash winnings and also the fair market value of prizes, such as cars and trips. A player is required to issue a certain form regarding certain gambling winnings if they receive gambling winnings or if they have any gambling winnings that are subject to federal income tax withholding. Gambling winnings must be reported as ‘other income’. In addition to this, players may be required to pay an estimated tax on their gambling winnings. The IRS say that players may deduct gambling losses only if they itemize their deductions. However, the number of losses they may deduct may not be more than the amount of gambling income reported on the return.
It is important to keep an accurate diary or similar record of your gambling winnings and losses. In order to deduct your losses on your tax return, you must be able to provide receipts, tickets, even statements and any other records that show the amount of both your winnings and your losses. Players that are considered to be a non-resident of the United States for income purposes must check with the IRS how they declare their winnings.
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