IRS Raises Jackpot Threshold, But Players Still Face Higher Taxes in 2026

The IRS has raised the slot jackpot reporting threshold from $1,200 up to $2,000. From January 1, this new limit will be introduced, changing the longstanding threshold of twelve hundred dollars that has stood intact for nearly 50 years. Anyone who hasn’t hit a $1,200 payout or higher may not realize what this actually means. It is not a change on the gambling tax laws or a tax free threshold on winnings. Not at all.

Instead, it means you won’t receive a W-2G form if you win a lump sum, now legally set to $2,000 or higher. A long awaited change that the American Gaming Association was challenging for the past few years, this comes amid a bunch of regulatory updates, both at a federal level and by individual state authorities. These, unfortunately, don’t really favor players. With the One Big Beautiful Bill laws coming into effect from 2026 and several states proposing to increase iGaming and sports betting taxes, players and operators are going to feel the pinch.

What Is the Slot Jackpot Reporting Threshold

Going back to this reporting tax threshold, this is basically a limit at which the casino operator has to issue a Form W-2G. It is only really noticeable at landbased US casinos. If you have never hit a single payout of over $1,200 at a slot machine, then you haven’t experienced the following scenario:

1. You hit the jackpot above the limit, and the game will then stop
2. An alert is sent to the casino staff, and they have to send someone to your machine
3. The staff arrives, verifies the win, checks the machine and confirms the jackpot
4. If you haven’t provided it yet (at a walk-in casino, for example), you have to show an ID document and your SSN or taxpayer ID
5. The casino calculates the payout, which is subject to federal withholding
6. A paper form W-2G is printed, and you have to sign this
7. The form is sent to the IRS, and you receive your winnings
8. You’re all done, you can go back to playing

After your jackpot has been confirmed and documented, possibly with an ID check between the two steps, the game will unfreeze, and you can continue playing. The IRS have raised this limit from $1,200 up to $2,000, meaning you won’t have to play out the scenario if you hit anything below $2,000. But it is not a really generous boost for casino gamers. If you adjust for inflation, that $1,200 in 1977 is probably worth around $6,400 today. We calculated that on a USD historical inflation calculator.

But it does reduce the paperwork and manual proceedings somewhat at landbased casinos. Any single win you hit under $2,000 doesn’t need to be manually checked by the casino pit boss or a member of staff.

Is it the Same at Online Casinos?

At online casinos, you won’t run into this bureaucratic hiccup, as all your winnings and returns are recorded on the platform. You would get the same form at the end of the fiscal year, and there is no ID verification or security check in the middle of your gaming session.

The reporting tax limit is just that. It is a report that must be done manually at landbased venues, regardless of whether you are playing at a gas stop casino arcade or a casino on the Las Vegas Strip. If you never hit the limit, you still have to pay tax; only you won’t have to stop your gaming session to report that one big win.

US Gambling Tax 101

Because in the US, all your gambling winnings are taxed. There is a flat federal withholding tax for larger wins, which is anything over $5,000 for slots, bingo, keno and poker. Any single jackpot you win above this amount is subject to 24% federal withholding. Winnings below that amount have no automatic withholding, but they are still taxable.

Then, there is state tax, which can vary significantly depending on the state in which you reside. A lot of states use income tax brackets for winnings above the federal reporting thresholds, but there are states with specified gambling tax rates. In New Jersey, for example, the tax rates can vary from 3% up to 10.75% depending on your total income, and sports betting is taxed differently. Some states have no state income tax on gambling winnings, whereas others can go up to 10% or even higher.

But some of the rules around gambling tax are going to change from 2026 onwards. The most notable of which are the gambling loss deductions.

BBB Gambling Loss Deductions

Under the One Big Beautiful Bill act, players can only deduct 90% of total losses instead of 100%. How it works is that you have to itemize deductions on your federal tax return, and it cannot be done as a general reduction – so you can’t gamble away $5,000 and then deduct it from your tax.

Instead, you deduct losses up to the amount of gambling winnings you report, or 90% of it from 2026. For instance:

• You win $12,500
• You lose $12,500
• Net: $0
• Deducted/taxed: $12,500 deductible. $0 taxed

Before the 2026 tax year, you could deduct the entire losses, $12,500. If you lost more than you won, like say $15,000, then you could only deduct up to $12,500 and the rest cannot be used. But going forward, instead of deducting $12,500 in losses from that example, you can only deduct up to $11,250. That is, up to 90% of the documented winnings amount.

• You win: $12,500
• You lose: $12,500
• Net: $0
• Deducted/taxed: $11,250 deductible. $1,250 taxed

This changes the way gamblers zero out their tax bills. Players who break even with their wins and losses will need to pay tax. So you can’t just cut your losses to a minimum and then deduct your losses anymore. You have to win a little more to nullify the gambling tax.

This system no longer focuses on profit like it used to. You could have a net loss but still have to pay taxes. For example:

• You win $20,000
• You lose $22,000
• Net: -$2,000
• Deducted/taxed: $18,000 deductible. $2,000 taxed

With a loss of $4,000, before you could deduct the $20,000 and not have to pay tax. Going forward, you can only deduct 90% of the $20,000. That means, of your winnings you can deduct $18,000, but the remaining $2,000 is taxed. So you are at an overall loss of $2,000 but still need to pay tax on the $2,000 winnings (which you don’t have).

Assuming the federal withholding is 24% and you live in a state where the income tax is 5%, that means you could pay an extra $580.

US States Proposing Higher Operator Tax

The online casinos and sportsbooks are not directly impacted by the gambling loss deductions legislation. Though they are indirectly impacted if players spend less and don’t gamble as much. But operators have worries of their own to manage. Numerous states are now considering raising their gambling tax, impacting both iGaming and sports betting operators. New Jersey’s governor proposed a hike to bring both iGaming tax and sports betting tax up to 25% each, from 15% and 13%, respectively. The budget proposal aims to generate roughly $402 million in annual revenue if passed. But these projections, made from the lawmakers’ side, often don’t consider the wider implications of gambling tax hikes.

For example, in the UK, the Autumn Budget forecast was to make £1.6 billion in gambling revenue, but trade analysts expect it may just collect £800 million. In the US, Maryland, Illinois, Ohio, and Wyoming have all explored raising the gambling (or just sports betting) tax to increase state revenue.

While operators will want to soak up the impacts of any tax hikes as much as they can, it is inevitable that these will spill over and affect the player experience. Operator tax hikes may equate to fewer bonuses and promotions, iGaming operators potentially cutting back on their game portfolio or even picking lower RTP games. For sports bettors, it can lead to an increase in the juice, thus lowering the potential returns.

Always Be Mindful of Gaming Tax

Ultimately, the rise in the slot jackpot reporting threshold was long overdue. It takes away the manual verification on wins up to $2,000, which will no doubt make the gaming experience on the casino floor smoother. But gamers should be cautious of the rising tax on games of chance. Reducing the gambling loss deductions percentage from 100% to 90% basically means players cannot simply break even anymore. To make a net profit, they will need to beat the house and overcome the additional taxation that they cannot deduct.

With gambling taxes on operators potentially increasing, it may also lead to gaming platforms cutting back on their promotions or tweaking the terms and conditions to reduce their value. Gamers in the US should always be wary of the gambling tax – all winnings made through games of chance have to be reported. And always, if you aren’t sure, it is best to reach out to a professional accountant or office.