Gambling income (“winnings”) is subject to state and federal income taxes. This includes winnings from the Minnesota State Lottery and other lotteries. You’re responsible to report and pay income tax on all prizes and winnings, even if you didn’t receive a federal Form W-2G, Certain Gambling Winnings.
If you’re a Minnesota resident, all winnings are subject to state income tax and must be reported on your Minnesota tax return (Form M1, Individual Income Tax). This includes winnings from Minnesota, anywhere else in the U.S., other countries and Internet gambling.
This includes residents of North Dakota and Michigan. Income tax reciprocity agreements with those states don’t apply to gambling winnings, which aren’t considered “personal service income.” See Reciprocity
Credit for Taxes Paid to Other States
If you’re a Minnesota resident and paid income tax on winnings to another state or the District of Columbia, you might be able to claim a credit on your Minnesota tax return. See the instructions for Schedule M1CR, Credit for Income Tax Paid to Another State.
If you’re a nonresident and your home state has an income tax, you might be able to claim a credit for taxes paid to Minnesota on your winnings. Contact your state revenue department for information.
You should keep an accurate diary or similar record of all gambling losses and winnings in case there are any questions about these items on your tax return. Your records should include at least the following information:
- Dates and types of specific wagers or gambling activities
- Names and locations of the gambling establishments involved
- Amounts that you spent when you won or lost
You may need to provide further documentation if you’re claiming a deduction for gambling losses. You can generally prove your winnings and losses with federal Form W-2G, cancelled checks, credit records, bank withdrawal forms, and/or payment slips from the gambling establishment. For details, see IRS Publication 529, Miscellaneous Deductions.
Deduction of Gambling Losses
You may deduct gambling losses on your federal tax return if you itemize deductions. You can’t deduct more in gambling losses than you report in winnings. For details, see IRS Schedule A (Form 1040).
You must be able to prove the amount of your losses with receipts, diary entries, tickets or other statements. See “Record Keeping,” above.
Note: There is no separate state deduction for gambling losses. Minnesota’s tax calculations start with your federal taxable income. Thus any losses deducted on your federal return are already reflected in your Minnesota taxable income.
Minnesota Alternative Minimum Tax
Minnesota doesn’t allow deductions for gambling losses when calculating and paying the state Alternative Minimum Tax (AMT). Since state and federal rules differ, you may have to pay Minnesota’s AMT even if you didn’t on your federal return.
It’s more likely you’ll have to pay Minnesota’s AMT if you claimed large deductions for gambling losses, home mortgage interest or some other expenses on federal Schedule A. For more information, see Alternative Minimum Tax.