Gambling winnings over a specific amount have to be declared on your tax return.
The interesting thing is; you can write off gambling losses, but you have to itemize to do it AND you can only deduct up to the amount of your total winnings. (ie, gambling losses can't be used as a write-off if you haven't won anything)
I've never been a gambler, but if I remember correctly. Gambling winnings have a flat 25% tax rate and I believe winnings over $5k are subject to income tax also. So if I recall correctly, he will have to pay gambling taxes which is not subject to a minimum income tax as normal work is. (ie, make less than a certain amount, you don't pay any taxes)
Gambling tax is different than income tax and as noted. Once your gambling winnings reach a specific amount. It also becomes income taxable.
So if your buddy receives a visit from the IRS and didn't pay his gambling tax. He will be in default and will be forced to pay it and interest on that tax.
Gambling winnings are income, are reported as "other income" on your 1040, and are taxed as income. (They can be offset by losses, so we're really talking net gambling winnings.)
The other stuff is all about reporting and withholding requirements. If you win over a certain amount ($1200 in gambling winnings from bingo or slot machines, other cutoffs for other kinds of gambling winnings), the payer must issue you a form W-2G and withhold a certain percentage (25% if you give them your SSN, 28% if you don't) for taxes. That doesn't mean you'll end up paying 25% or 28%: it's just the amount that gets withheld, in the same way that income tax is withheld from your paycheck.
Edit: I see this isn't quite right. The $1200 cutoff above is about reporting. Withholding is only required if the winnings are greater than $5000 (or 300 times the bet).
For an unemployed person, it's entirely possible that the gambling winnings plus any other income don't rise to the level where he'll owe any income tax, in which case that withheld tax would come back as a refund.
,,,er,,me Too!
