September 1, 2016
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On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
Article Highlights:
How can this be? Well, you know how tangled a web our tax laws are, and adding Obamacare into the equation has created some interesting fallout, such as this oddity.
To understand how it happens, you must first understand how gambling winnings and losses are treated on your tax return. They are generally not netted on the tax return. The total gambling winnings are included in your adjusted gross income (AGI) for the year, and your losses are taken as an itemized deduction and limited to an amount not exceeding your reported winnings.
So, whether or not you itemize your deductions and deduct your gambling losses, the full amount of the gambling winnings is included in your AGI, and your AGI is included in your household income, which is used to determine the amount of premium tax credit (PTC) to which you are entitled. PTC is the subsidy provided by the government to help pay for your insurance when you purchase it through the government insurance Marketplace. The higher your income, the lower your PTC, and the lower the PTC, the higher your insurance premiums.
If your gambling winnings exceed certain thresholds based on the type of gambling you did and the amount you won, the casino, poker palace or racetrack is required to send you and the IRS a Form W-2G that shows the winnings, so you can be sure the IRS will be aware of your gambling income. Even if your losses for the year exceed your winnings, or if you don't receive a W-2G form, the IRS expects you to report your winnings, which will increase your AGI and, likely, your Marketplace-purchased insurance premiums also.
The same requirement applies if you win on a game show: the winnings are included in your AGI, and even if you give the goods you won to charity and deducted the contribution as an itemized deduction, your gross income includes the entire winnings.
Although impacting very few individuals, if you are retired and on Medicare, there is a similar scenario that can increase the cost of Medicare B and D premiums. An individual's Medicare B and D premiums are based on his or her AGI from two years prior. Thus, if you hit it big a couple of years back, you could see a rise in both your monthly Medicare B premium and a supplement for the Medicare D premium (prescription drug coverage).
However, the Medicare premium increase generally impacts higher-income individuals who can deal more easily with the increased costs. If you have any questions about how gambling winnings and losses may affect your tax return and medical insurance costs, please give this office a call.
- Adjusted Gross Income
- Reporting Gambling Winnings
- Reporting Gambling Losses
- Netting Gambling Winnings & Losses
- Premium Tax Credit
- Game Show Winnings
- Medicare Premiums
How can this be? Well, you know how tangled a web our tax laws are, and adding Obamacare into the equation has created some interesting fallout, such as this oddity.
To understand how it happens, you must first understand how gambling winnings and losses are treated on your tax return. They are generally not netted on the tax return. The total gambling winnings are included in your adjusted gross income (AGI) for the year, and your losses are taken as an itemized deduction and limited to an amount not exceeding your reported winnings.
So, whether or not you itemize your deductions and deduct your gambling losses, the full amount of the gambling winnings is included in your AGI, and your AGI is included in your household income, which is used to determine the amount of premium tax credit (PTC) to which you are entitled. PTC is the subsidy provided by the government to help pay for your insurance when you purchase it through the government insurance Marketplace. The higher your income, the lower your PTC, and the lower the PTC, the higher your insurance premiums.
If your gambling winnings exceed certain thresholds based on the type of gambling you did and the amount you won, the casino, poker palace or racetrack is required to send you and the IRS a Form W-2G that shows the winnings, so you can be sure the IRS will be aware of your gambling income. Even if your losses for the year exceed your winnings, or if you don't receive a W-2G form, the IRS expects you to report your winnings, which will increase your AGI and, likely, your Marketplace-purchased insurance premiums also.
The same requirement applies if you win on a game show: the winnings are included in your AGI, and even if you give the goods you won to charity and deducted the contribution as an itemized deduction, your gross income includes the entire winnings.
Although impacting very few individuals, if you are retired and on Medicare, there is a similar scenario that can increase the cost of Medicare B and D premiums. An individual's Medicare B and D premiums are based on his or her AGI from two years prior. Thus, if you hit it big a couple of years back, you could see a rise in both your monthly Medicare B premium and a supplement for the Medicare D premium (prescription drug coverage).
However, the Medicare premium increase generally impacts higher-income individuals who can deal more easily with the increased costs. If you have any questions about how gambling winnings and losses may affect your tax return and medical insurance costs, please give this office a call.
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