The news that the US Treasury department is reviewing the 300-1 rule on automatic withholding of taxes on a winning bet – yes that ugly one in which how many perms, parlays and multiples are involved in that winning bet are ignored – should be welcomed. Or should it? Shouldn’t we be asking for the US to come into line with Australia, the UK, Ireland, Germany, Canada and most of the rest of the world by making all gambling winnings completely tax free?
The US stands alone in the world in its taxation of gambling and gaming winnings. When you play the horses, you are playing for the government too. But with your (already income taxed) money…
If you win the lottery here in the US, Uncle Sam is going take a large portion of your winnings. If you win the quiz show “Who Wants To Be a Millionaire?” no, you’re not going to be a millionaire, because Uncle Sam is going to take a sizeable chunk of it again. If you were a UK Citizen and you won the UK version of “Who Wants To Be a Millionaire” yes, you would keep every penny of it and become a millionaire. Period. No income tax to pay, no capital gains tax to pay and no gambling winnings tax to pay.
Many here in the US like to believe that our taxes are very low compared to most other countries, but when we take a closer look and take into account the many add ons we get hit for, from the multiple financial dings we receive listed in the bill when we buy a car, (“destination tax” for example), to the tax add ons you see on many items such as your monthly cell phone bill, to sales tax and gambling winnings tax… it’s not so good. While income tax rates may mean we are marginally better off than a few countries in that particular tax area, Uncle Sam makes up for it by taxing us in many other additional ways.
In Australia gambling winnings are not considered taxable for the civilized reasons quoted here –
“In Australia Gambling is not considered a profession, it’s treated as a hobby or recreational activity. The Australian government views gains from gambling activities not as income, but as a result of good luck. Even if someone wins big, they also lose a lot in other gambling sessions. The government taxes gambling operators instead.”
Sounds like a very fair and reasonable approach does it not? I particularly appreciate how the Australian government views gains from gambling activities not as income but as a result of “good luck”. In the US gains from gambling are treated as income and the horse player will be taxed on those 300-1 wins. But what is particularly galling and outrageously unfair is the fact that while a horse player can offset losing tickets in a year against their winnings – they can only do this to the extent of any gains in that particular year. If a horse player has a net loss in a year of gambling, unlike a business they cannot offset that loss against their other income in that year. So why should they be taxed when they have a net gain from gambling?
Let’s be fair Uncle Sam. If gambling winnings are going to be treated like a business or income gain to be taxed, then every horse player should be entitled to keep a record of their wagers and if at the end of the year they have a loss, they should be able to use it as a write off every April 15th. If that’s too much for you to swallow, okay fine, but in that case you should stop taxing gambling winnings and let horse players (and lottery winners) enjoy their “good luck” without slapping them in the face by taking money from them when they win big.