Sign up to an online sweepstake casino and it’s possible to win real-life prizes without depositing so much as a single cent. The question is, do you need to pay any taxes on sweepstakes winnings in the US?

This guide will explain how it’s possible to land real rewards from playing free casino games, as well as exploring the tax implications. Sweepstake winnings count as income and need to be declared, so make sure you understand how to stay on the right side of state and federal laws.

• Taxes on sweepstakes winnings help fund government services and programs.
• Paying taxes on sweepstakes winnings is a legal requirement and helps maintain fairness in the tax system.
• After paying taxes on sweepstakes winnings, the remaining amount can still provide a substantial financial benefit to the winner.

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What is a sweepstake casino?

Let’s just hold off on the tax element for a moment and focus on the concept of a sweepstake casino. This is a free-to-play online casino site that often looks and feels just like a real-money version – except you’ll be playing games using free Gold Coins. Of course, they’re not really gold, and they don’t exist in any tangible form, but operators and players enjoy the terminology, as it sounds more user-friendly than ‘virtual game token’.

Sweeps casinos even offer exclusive promotions, enabling you to claim more gaming Coins. Over at Stake.us, for example, those in the know input CRYPTGAMBL when registering, to receive an ongoing 5% rakeback on all losses. That percentage could even increase over time, for players who climb the VIP levels – yes, free-to-play casinos have those too!

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What do taxes on sweepstakes winnings have to do with free-to-play games?

At this point, you need to know that there are two types of social casinos. There are those that offer free to play games only and those that offer free to play games plus sweepstake games.

All of them use Gold Coins, those free game tokens, which can’t ever be transferred, redeemed, exchanged or withdrawn. Gold Coins are just for fun, and there are usually plenty of ways in which players can help themselves to more, such as:

• Daily login bonuses, awarding Gold Coins for checking back in every day, or even every few hours.
• Weekly and monthly bonuses, often based on gameplay and loyalty level.
• Prize draws and giveaways on social media channels.
• Tournaments, challenges and competitions, many of which reinforce the social element of gameplay.

Of course, you can win Gold Coins too, through playing the onsite slots and table games. But if all else fails, and you simply can’t wait for your next Gold Coin bonus drop, there’s always an option to purchase bundles of Gold Coins. Remember though, you can’t redeem them or convert them back into cash. Gold Coins are just for fun and have no monetary value.

Fun play with no taxes

Since you only need to pay taxes on sweepstakes winnings, and not on Gold Coin prizes, there’s no tax burden involved in playing at a social casino such as BetRivers.net. Free-to-play social casinos that only offer Gold Coins – even if they sometimes go by another name – can’t reward you with gift cards, merchandise or cash prizes, so there’s never any tax to take into consideration.

Sweeps Coins are the ones to watch

Register for an account at a sweepstake casino such as Stake.us, or Pulsz, and there’s more than just Gold Coins available for playing games. These operators offer another type of virtual game token known as Sweeps Coins, although some sites call them by a different name. Over at Stake.us they’ve been rebranded as Stake Cash, for example, but they still work in exactly the same way.

Sweeps Coins are also given away for free by operators, but they’re much harder to come by than Gold Coins. That’s because Sweeps Coins, once played through in accordance with any associated terms and conditions, can be redeemed for cash, gift cards, and other tangible rewards.

Unlike Gold Coins, Sweeps Coins can’t be purchased, although some operators throw in a few redeemable tokens as an extra bonus. Players tend to play through their Sweeps Coins more thoughtfully than Gold Coins, since there could be real prizes on offer – and it’s those prizes that the IRS wants to know about in terms of charging taxes on sweepstakes winnings.

Why must I pay taxes on sweepstakes winnings?

Your sweepstakes prize has a value, and it therefore qualifies as income, even if entering the contest or prize draw didn’t cost you so much as a single cent. The US federal government expects to receive tax on all your income, including prizes from raffles, lotteries and sweepstakes.

Don’t assume that a prize awarded without any effort on your part is exempt from taxes. The IRS isn’t interested in the circumstances surrounding the win, only in the actual win itself. Even if the amount is just one dollar, it needs to be included as part of your taxable income.

Prizes valued at $600 or more

It makes no difference to the IRS whether a prize takes the form of cash, merchandise or a short break, it all counts as income for tax purposes. And if the prize is worth more than $600, the sweepstake operator needs to complete Form 1099-MISC to officially notify both you and the IRS. Don’t assume that amounts of less than $600 can be avoided though, as they still need to be reported and any taxes paid.

Prizes valued at $5,000 or more

Where a sweepstakes prize is valued at more than $5,000, the operator is required to withhold 25% of its value for the purposes of paying federal taxes. There may be a requirement to withhold an extra amount for paying state taxes too, but that depends on individual state laws.

Which states don’t charge taxes on sweepstakes winnings?

Most states require you to pay income tax on sweeps prizes.  However, residents of the following states won’t be required to pay tax on sweepstake prizes:

• Alaska
• Florida
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

If you live in California, New Hampshire, Delaware, or Pennsylvania you won’t be subject to taxes on any forms of gambling, including sweepstakes winnings. It’s important to note that Washington has very strict rules regarding sweepstakes, which may prevent access to some of the most popular operators.

Even if you’re fortunate enough to live in a state that doesn’t tax sweepstake winnings, be careful if you participate in sweepstakes in a state in which they are taxable. If in any doubt at all, it’s always best to reach out to your state tax collection agency for advice and guidance.

How much will I have to pay in taxes on sweepstakes winnings?

The amount of tax that you’ll be required to pay on sweepstake winnings depends on where you live and what income bracket you fall into. In most cases you’ll be expected to record any cash prizes on Form 1040 as ‘Income’, with holidays or other non-monetary prizes listed under ‘Other Income’. In cases where additional taxes may be charged, such as airport taxes for vacation prizes, for example, it’s down to the operator to ensure that these are paid.

Always read through the operator’s terms and conditions

Traditionally, the terms and conditions of a website have been presented in a tiny font, using incomprehensive language, so it’s no wonder that most people tend to bypass them entirely. But this is a big mistake, particularly when it comes to sweepstake casinos. There’s usually a wealth of information buried within the terms, and knowledge is power, so it pays to read them.

Sweepstakes operators are legally obliged to set out their rules in full, including which taxes are covered, and which aren’t. This is where you’ll find out whether you might need to pay any taxes upfront before receiving your prize, and whether the responsibility is yours or the operators to inform the IRS about any wins.

Conclusion: stay on top of your taxes on sweepstakes winnings

When you register at a sweepstake casino, playing games and having fun will likely be at the top of your To-Do list, not filling out tax forms. But any failure to keep the authorities up to speed on your income – including winnings from sweepstakes – could land you in big trouble, not to mention the prospect of a heavy fine. Why risk spoiling the fun over something as simple as paying the correct taxes in accordance with federal and state laws?