Sweepstakes Casino Taxes: Complete 2026 IRS Guide

Are Sweepstakes Casino Winnings Taxable?

Yes, absolutely. The IRS treats sweepstakes casino winnings as taxable income, just like traditional gambling winnings, lottery prizes, or game show earnings. When you redeem Sweeps Coins for cash, you're receiving a prize—and all prizes over $600 in a calendar year must be reported to the IRS.

The critical difference from regular online casino gambling: Sweepstakes winnings are classified as "Other Income" (prize/sweepstakes income), not traditional gambling income. This affects which tax forms you receive and how you report/deduct expenses.

IRS Tax Forms Explained

Sweepstakes casinos use different tax forms than traditional gambling establishments:

Form 1099-MISC (Most Common)

You'll receive Form 1099-MISC if your total Sweeps Coin redemptions (cash prizes) exceed:

• 2025 tax year: $600+ in a calendar year
• 2026 tax year onward: $2,000+ in a calendar year (with inflation adjustments after 2027)

The sweepstakes casino reports this to both you and the IRS in January/February. You'll see your total prize winnings in Box 3: Other Income.

What it means: This is prize/sweepstakes income. You report it on Form 1040, Schedule 1, Line 8z ("Other Income").

Form W-2G (Rare for Sweepstakes Casinos)

You'll receive Form W-2G only if:

• Your winnings from a single redemption/session exceed $5,000, AND
• The winnings are at least 300x your wager (for sweepstakes/lottery-style games)

When this happens, the casino will automatically withhold 24% federal tax before paying you.

Reality check: Most sweepstakes casino players never hit W-2G thresholds. McLuck, Pulsz, High 5, and similar platforms almost exclusively use 1099-MISC because individual redemptions rarely exceed $5,000 in a single payout.

No Form Received? You Still Owe Taxes

If you cash out $1,500 in Sweeps Coins but don't get a 1099 (because it's under the $2,000 threshold for 2026), you're still legally required to report it as income. The IRS expects you to self-report all taxable income, regardless of whether you receive a form.

How Much Tax Do You Pay?

Sweepstakes winnings are taxed as ordinary income at your marginal federal tax rate:

Example: If you earn $60,000 salary + redeem $5,000 in Sweeps Coins, your total taxable income is $65,000. The $5,000 in sweepstakes winnings gets taxed at your marginal rate (22% bracket = $1,100 federal tax on the winnings).

Automatic Withholding (24%)

If you receive Form W-2G (winnings over $5,000), the sweepstakes casino will automatically withhold 24% federal tax before paying you. For a $6,000 redemption, you'd receive $4,560 after withholding ($1,440 withheld).

If your actual tax bracket is lower than 24%, you'll get a refund when filing. If higher (32%+), you'll owe additional taxes.

Can You Deduct Losses or Gold Coin Purchases?

This is where sweepstakes casino taxes get tricky—and expensive.

Gold Coin Purchases Are NOT Deductible

You cannot deduct Gold Coin purchases as gambling losses. Here's why:

• When you buy Gold Coins, you're purchasing entertainment currency (like buying tokens at an arcade), not placing a wager
• The IRS doesn't recognize GC purchases as gambling expenses because Sweeps Coins are obtained for free (bundled as promotional gifts)
• Even if you spent $2,000 on Gold Coins and only redeemed $500 in Sweeps Coins, you can't claim that $2,000 as a loss

Tax treatment: The IRS views sweepstakes casino play as winning prizes through a promotional sweepstakes, not gambling with wagers. No wagers = no deductible losses.

Traditional Gambling Loss Deduction (Doesn't Apply)

For traditional gambling (licensed casinos, poker, sports betting), you can deduct losses up to the amount of winnings if you itemize deductions on Schedule A. Key rules:

• You must keep detailed records (receipts, tickets, logs)
• Losses can't exceed winnings (can't create a net loss to offset other income)
• New 2026 limit: Losses deductible only up to 90% of winnings (down from 100% in 2025)

Why this doesn't help sweepstakes players: Most tax experts agree the gambling loss deduction doesn't apply to sweepstakes winnings because they're classified as "Other Income" (prizes), not gambling income. You can't deduct Gold Coin purchases, and you can't offset Sweeps Coin winnings with traditional gambling losses from other platforms.

What About Professional Gamblers?

If gambling is your trade or business (full-time professional gambler), you can deduct expenses (travel, entry fees, etc.) as business expenses on Schedule C. However, sweepstakes casino players almost never qualify for this status—it requires proving gambling is your primary income source, not a hobby.

State Tax Obligations

State tax treatment varies wildly. Here's the breakdown:

States with NO Income Tax on Winnings

You pay zero state tax on sweepstakes winnings if you live in:

• No income tax states: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming
• Income tax but exempt gambling/prize winnings: California, Delaware, New Hampshire, Pennsylvania

Total: 11 states with no state tax on sweepstakes winnings.

States with Income Tax on Winnings

The remaining 39 states + DC tax sweepstakes winnings as ordinary income. Rates range from:

• Low: 2.9% (North Dakota) to 3.23% (Pennsylvania)
• Medium: 5–6% (most states)
• High: 10.9% (Minnesota), 13.3% (California top bracket—but CA exempts gambling winnings, so this doesn't apply)

Example (Illinois resident): Redeem $3,000 in Sweeps Coins → pay 4.95% state tax ($148.50) + federal tax based on your bracket.

Multi-State Tax Issues

If you redeem Sweeps Coins while physically in a different state (e.g., live in New Jersey, cash out while visiting Florida), you typically owe tax in your state of residence, not where you redeemed. However, some states have complex rules—consult a tax professional if you move mid-year or redeem large amounts while traveling.

Record-Keeping Requirements

To accurately report sweepstakes casino income (and defend against potential audits), keep these records:

1. Redemption receipts: Screenshots or emails of every Sweeps Coin redemption (date, amount, platform)
2. 1099-MISC forms: Keep all forms received from sweepstakes casinos for at least 7 years
3. Account statements: Download monthly transaction history from McLuck, Pulsz, etc., showing all redemptions
4. Gold Coin purchase records: Even though not deductible, keep receipts in case you need to prove winnings vs. expenses
5. Session logs (optional): Track play sessions (date, games played, starting/ending SC balance) to reconstruct winnings if needed

Pro tip: Create a spreadsheet with columns: Date | Platform | Redemption Amount | Tax Form Received. Update it every time you cash out. This takes 2 minutes and saves hours during tax season.

How to Report Sweepstakes Winnings on Your Tax Return

Step-by-step filing instructions for 2026:

Step 1: Gather Your 1099-MISC Forms

Sweepstakes casinos mail 1099-MISC forms by January 31 for the previous tax year. If you redeemed $2,000+ from a single platform in 2026, you'll receive one. Add up all 1099-MISC amounts.

Step 2: Calculate Total Unreported Winnings

Check your records for redemptions under $2,000 from platforms that didn't send a 1099. Add these to your 1099-MISC totals.

Example: Received $2,500 from McLuck (1099-MISC) + $1,200 from Pulsz (no 1099) + $800 from High 5 (no 1099) = $4,500 total taxable winnings.

Step 3: Report on Form 1040

1. Complete Schedule 1 (Additional Income)
2. Enter your total sweepstakes winnings on Line 8z: Other Income
3. Write "Sweepstakes prizes" or "Prize income" in the description
4. Transfer the Schedule 1 total to Form 1040, Line 8

Step 4: Pay Estimated Taxes (If Needed)

If you redeem large amounts throughout the year ($10,000+) and don't have withholding, you may need to make quarterly estimated tax payments to avoid underpayment penalties. Use Form 1040-ES.

Penalties for Not Reporting

Failing to report sweepstakes winnings can trigger:

• Failure-to-pay penalty: 0.5% of unpaid taxes per month (max 25%)
• Failure-to-file penalty: 5% of unpaid taxes per month if you don't file a return
• Interest: IRS charges interest on unpaid taxes (currently 7–8% annually)
• Accuracy-related penalty: 20% penalty if the IRS determines you substantially understated income

Audit risk: The sweepstakes casino sends a copy of your 1099-MISC to the IRS. If you don't report it, the IRS automated system flags the discrepancy and sends a CP2000 notice (proposes additional taxes owed). This is nearly guaranteed if you ignore a 1099.

Tax Minimization Strategies (Legal)

You can't avoid taxes on sweepstakes winnings, but you can reduce your liability:

1. Stay Below Reporting Thresholds (Small Players)

If you only redeem <$2,000 per platform per year, you won't trigger 1099-MISC reporting. However, you're still legally required to self-report the income.

2. Time Your Redemptions

If you're close to a higher tax bracket at year-end, delay redemptions until January to push income into the next tax year (when you might be in a lower bracket or have more deductions).

3. Maximize Standard Deduction

Since you can't deduct Gold Coin purchases, ensure you're maximizing other tax-advantaged strategies: max out IRA contributions ($7,000 for 2026, $8,000 if 50+), HSA contributions, 401(k) deferrals—anything that reduces your adjusted gross income.

4. Offset with Business Losses (If Applicable)

If you have a side business or self-employment income with deductible expenses, those losses can offset sweepstakes winnings on your overall tax return (though this is rare for most players).

5. Consult a Tax Professional

If you redeem $10,000+ annually, the $200–500 cost of a CPA pays for itself in potential tax savings and audit protection.

Common Tax Mistakes to Avoid

• Not reporting winnings under $2,000: Even without a 1099, all income is taxable. The IRS can audit returns up to 3 years back (6 years for substantial underreporting).
• Trying to deduct Gold Coin purchases: This will get rejected or trigger an audit. Gold Coins are entertainment purchases, not wagers.
• Confusing 1099-MISC with W-2G: Different forms, different reporting lines on your tax return. Use Schedule 1 Line 8z for 1099-MISC, not the gambling winnings section.
• Ignoring state taxes: Even if your state doesn't require a separate filing, some states auto-assess taxes based on your federal return. Check your state's specific rules.
• Throwing away 1099 forms: You need these for at least 7 years. The IRS has 3 years to audit (6 for major errors, unlimited for fraud).

Sweepstakes Taxes vs. Real-Money Casino Taxes

What About International Players?

If you're a non-US resident playing sweepstakes casinos (where legal):

• US platforms may withhold 30% federal tax on winnings (tax treaty rates may reduce this)
• You'll receive Form 1042-S (not 1099-MISC)
• You may be able to claim a refund or credit via IRS Form 1040-NR if your country has a tax treaty with the US
• Consult an international tax advisor—this gets complex fast

Reality check: Most sweepstakes casinos block non-US players or players in US territories (Puerto Rico, Guam) to avoid these complications.