John S asked:
My friend has recently won a fairly large amount playing a slot machine (let’s say it’s more than $15,000)–a lot, but not hundreds of thousands. She is a full-time student, and normally doesn’t have an income. How much, percentage wise will she be expected to pay to the IRS?
I’m guessing it will be reported as income, right? (Casinos don’t handle the taxes, do they?) She wants to do this by the book. She has no intention of incurring the IRS wrath(!)
She is required to file a tax return. If she has no other income, she will use Form 1040 and enter the winnings, say $15,000 on Line 21, listing it as “gambling winnings.”
Unless she has gambling losses in excess of $5,400, she will probably take the standard deduction. If she can document her gambling losses, she can deduct them on Schedule A. Otherwise, she takes a standard deduction of $5,400 and a personal exemption of $3,500 (I assume she is going to be paying over half of her own support in 2008, so she is not a dependent).
That leaves a taxable income of $6,100. Her tax on this amount is $610. She will not owe Social Security or Medicare tax.
She may also be required to file a state tax return in her state of residence, and possibly a state tax return in the state she won the money.
The casino will issue a W2-G. For this size of winnings, federal and taxes are usually withheld. Enter the W2-G information into any software package, and you are done.
Comment by ninasgramma — July 14, 2009 @ 8:12 pm