Reporting Winnings: More Than Just a Form W-2G
All gambling winnings are reportable income, the IRS states, and belong on the “Other income” line of Schedule 1, Form 1040. That holds whether a casino hands the player a Form W-2G or not. A payer must issue the form only when winnings exceed certain thresholds and, generally, the payout’s relationship to the wager triggers federal withholding. The IRS is explicit: the form is a reporting and withholding document, not the test of whether a win is taxable.
The precise triggers depend on the type of gambling, the dollar amount and the ratio of winnings to the bet. Slot-machine jackpots, keno prizes and certain poker tournament payouts each follow their own rules. The IRS’s 2026 Instructions for Forms W-2G and 5754 spell out those thresholds. A win that falls below the reporting floor still counts as income and must be included on the tax return. For instance, a $1,000 sportsbook hit in Montana is fully taxable even if no W-2G arrives in the mail.
The 2026 Shift: 90% Loss Deduction, Itemized Only
Taxpayers cannot simply net winnings against losses and report the difference. The IRS requires the full amount of winnings be declared as income, with allowable losses claimed separately. Gambling losses are deductible only as an itemized deduction on Schedule A, and they cannot exceed the total gambling winnings for the year.
The 2025 federal tax legislation, H.R. 1, inserted a further limit: for losses from wagering transactions, the allowable deduction is 90 percent of losses and is allowed only to the extent of gains from those transactions. The 2026 Form W-2G instructions now carry that same 90-percent rule. In practice, a gambler who records $20,000 in losses against $25,000 in winnings can deduct only $18,000, which is 90 percent of the losses. The remaining $2,000 in losses disappears for tax purposes, so $7,000 of the winnings stays taxable even though the bettor lost $20,000 over the year.
Because the deduction sits on Schedule A, it helps only those who forgo the standard deduction. Many recreational bettors will find the loss write-off irrelevant unless their total itemized deductions—mortgage interest, state and local taxes, charitable gifts and gambling losses combined—exceed the standard deduction. Still, for heavy gamblers with substantial other deductions, the new 90-percent cap bites.
What the IRS Wants to See: Recordkeeping
Documenting gambling activity is not optional for anyone claiming losses. The IRS says taxpayers should keep receipts, tickets, statements and a diary or similar record. That log must show winnings and losses separately, not a running net balance. A contemporaneous record matters: a notebook entry jotted down the morning after a casino run carries more weight than a spreadsheet built at tax time.
Tax professionals frequently advise a record that includes the date, location and amount of each wager, along with the type of game. The IRS’s gambling guidance does not prescribe a single format, but it does stress that the record must distinguish winnings from losses. Bank statements showing ATM withdrawals at a casino are not enough on their own; they might support a diary, but they do not replace it. Without a credible log, an IRS auditor can disallow the entire deduction.
Montana’s Own Tax and the Lottery Withholding
Montana imposes a state individual income tax, and certain gambling winnings get hit twice. The Montana Department of Revenue treats lottery prizes from tickets purchased in the state as Montana-source income, regardless of where the winner lives. A Californian who buys a Big Sky Bonus ticket at a Butte gas station and hits $10,000 owes Montana tax on that money.
The Montana State Lottery withholds 5.56 percent on winnings exceeding $5,000. That rate is specific to lottery payouts. No comparable withholding rate has been published for casino table games, sportsbook bets or other forms of gambling. A bettor who clears $4,000 on a blackjack run in Billings does not see an automatic state slice taken out, but the amount is still Montana-source income and must be reported. The Montana Department of Revenue’s Publication 1, updated in 2026, covers prepaying state tax on lottery winnings and other income, but it does not detail deduction rules for non-lottery losses.
Whether Montana will conform to the federal 90-percent limitation on gambling-loss deductions for the 2026 tax year remains unsettled. The state has not issued guidance aligning its deduction rules with the new federal cap. Taxpayers with significant casino or sportsbook activity should watch for any announcement from the Montana Department of Revenue before assuming the state follows the same 90-percent floor.
Where to Confirm the Rules
The IRS maintains several online resources that get re-pointed every year. The Form W-2G page and the 2026 instructions for Forms W-2G and 5754 list the latest reporting and withholding thresholds. The agency’s “Five important tips on gambling income and losses” publication walks through the basics of reporting winnings, itemizing losses and what records to keep. An interactive tool, “How do I claim my gambling winnings and/or losses?”, lets a taxpayer answer a few questions and get a tailored explanation.
For Montana-specific treatment, the Department of Revenue’s Publication 1 is the starting point. It explains lottery withholding and Montana-source income rules, though it does not answer every scenario for sportsbook or casino play. Because the IRS updates its thresholds and the Montana legislature can change state conformity law, checking both sources before filing is sensible.
These materials are informational, not tax advice. A Form W-2G from a sportsbook, a 5.56 percent state withholding slip from the lottery, or an IRS publication cannot substitute for a conversation with a tax professional about an individual’s full picture—standard deduction versus itemizing, total winnings across platforms, and the real cost of a 90-percent loss deduction. Separating winnings from losses in careful records, verifying the current IRS and Montana instructions, and sitting down with a preparer remain the only route that holds up under audit.