Alabama Gambling Tax Calculator: How Your Winnings Will Be Taxed

The State is still in the process of approving online and retail sports betting in Alabama within it’s borders. A constitutional amendment sponsored by State Senator Greg Albritton (R-Baldwin County) would establish the new Alabama Education Lottery and Gambling Commission (ELGC) along with an Alabama Educational Lottery, casino and sports betting. The gambling bill (SB293) is expected to clear the legislature and be sent to the general public for statewide approval in the November 2022 general election; ballot number is still to-be-determined.

The state is expected to draw as much as $700 million in new taxes on gambling in Alabama. As with any potential revenue stream, individuals will be expected to pay both Federal and State income tax on winnings. There are four local jurisdictions that will collect income tax at the local level.

In this article, BetAlabama will cover how to calculate taxes on winnings. Disclosure: BetAlabama does not act as a Certified Public Accountant, nor are these calculations expected to serve as final for tax preparation. Please consult your tax professional for final tax determinations.

Alabama Gambling Tax Calculator

Tax rates in the state, as they do in many other states, vary based on the amount of taxable income. In some cases, taxable income may also be subject to standard deductions and adjusted gross income. Winnings are subject to state and federal tax, but not FICA. 

Are Gambling Winnings Taxable in Alabama?

Yes, they are. What we do not yet know is the complete tax code and state law for Alabama betting revenue at the personal level because the ELGC is still to be formed. Every state that has income tax also assesses tax on betting revenues, so it is fully expected that Alabama legislation will follow suit, and winning will be taxed. It is possible, but unlikely, that the state could decide to levy sales tax on winnings.

What are the Gambling Tax Rates in Alabama?

Tax rates in the state, as they do in many other states, vary based on the amount of taxable income. In some cases, taxable income may also be subject to standard deductions and adjusted gross income. Winnings are subject to state and federal tax, but not FICA. 

State income tax rates range from 2% - 5% depending on income level. There are four municipalities who also assess local taxes. Players who either live or work in these jurisdictions will expect to pay additional local tax, BetAlabama expects betting revenue to fall under these tax jurisdictions as well.

How to Claim and Report Alabama Gambling Winnings for Taxes

State residents (and non-residents as well) can expect to see a W2-G federal withholding form filed on their behalf from the Casino or Sportsbook. When filing their tax returns, individuals will need to make sure they account for these winnings in their adjusted gross income.

It’s possible the IRS could ask you to substantiate wins and losses. If that happens, the following documentation will be helpful:

• Form(s) W-2G
• Wagering tickets with dates and location. The names of people who were with gambling with you at the time. Amounts won and lost.
• Canceled checks and casino credit records
• Relevant bank statements

What to Do if You Do Not Receive a W-2G Form in Alabama?

If a W2-G is not filed, the player is still responsible for paying taxes. Players must keep a diary or log of all winnings taken at the Casino or Sportsbook so they can properly file at the end of the year. Not filing income taxes, even without a W2-G, can result in fines from the IRS.

Players will need to keep receipts of all wins and losses to substantiate their claims in their returns at the end of the year.

Can I Deduct Gambling Losses in Alabama?

As stated above, yes, players may deduct gambling losses on their federal income tax. What is unknown at this time is how State income tax deductions will be itemized. The IRS does allow a deduction of lost monies up to the amount won. For example: if a player has a total winning amount of $6,500 but losses of $7,500, they may only deduct $6,500 in their itemized section.

The IRS will want documentation on all claimed losses, these may include:

• Form(s) W2-G
• Form 5754 (group winnings)
• Wagering tickets with dates, locations, and amounts won/lost
• Canceled checks or credit card receipts
• Financial and/or bank statements

Players will need to consult with their tax professional for more details on documentation requirements for Alabama betting taxes.

Alabama Lottery Taxes

If approved, the Alabama Educational Lottery will provide additional tax revenue. Much the same as sports gambling legislation, the state is still in the process of determining what the rules around the Alabama Educational Lottery and its revenue expectations. Many states do not charge additional tax on lottery winnings, but Alabama’s neighbor to the East (Georgia) charges one of the highest rates in the country (6%). 

Federal withholding tax will still apply and must be reported on IRS tax filings.

How Are Group Lottery Wins Taxed in Alabama

Group winnings must be reported on Form 5754 or a substitute 5754. All members of the group must provide their name, Social Security number, photo ID, and sign the form. One person must be approved as the primary winner and will represent the group in filings.

Taxes on Multi-State Lottery Wins

The same tax liability still applies, even if the winnings are multi-state or regardless of the residency of the winner. Federal tax will still be withheld at 24%.

What Happens If I Don’t Report My Gambling Winnings?

As the old saying goes there are two things assured, death and taxes…we all know Uncle Sam is gonna get his take. If you fail to report gambling revenues (winnings), your Alabama gambling taxes will be higher because the IRS will not only seek the back-taxes, they will levy fines on top.