Do You Need to Pay Taxes on Game Winnings in USA if You Withdraw to Bitcoin?

Here’s the short answer that might disappoint some crypto enthusiasts: 

Yes, you absolutely need to pay taxes on casino winnings in the USA, regardless of whether you withdraw to Bitcoin, Ethereum, or any other cryptocurrency. 

The method you use to receive your winnings doesn’t change the fundamental tax obligation—and in some cases, choosing Bitcoin can actually create additional tax complexity.

This is one of the most common misconceptions in the crypto gambling world. Many players believe that withdrawing casino winnings to Bitcoin somehow places them in a tax-free zone or makes their winnings untraceable to the IRS. Unfortunately, this thinking can lead to serious legal and financial consequences. Let’s break down exactly what you need to know about taxes, crypto casino winnings, and your legal obligations as a US taxpayer.

The IRS Doesn’t Care How You Receive Your Winnings

The Internal Revenue Service has made it crystal clear: gambling winnings are taxable income, period. According to IRS Topic 419 on gambling income, “Gambling winnings are fully taxable and you must report the income on your tax return. Gambling income includes but isn’t limited to winnings from lotteries, raffles, horse races, and casinos.”

Notice that the IRS doesn’t make exceptions based on:

• Whether the casino is offshore or US-based
• What payment method you use to receive winnings
• Whether you receive cash, cryptocurrency, or any other form of payment
• Whether the casino issues you tax documents or not

The tax obligation exists the moment you win, not when you convert your winnings to a different form of currency.

Bitcoin Creates Double Taxation Scenarios

Here’s where choosing Bitcoin withdrawals can actually make your tax situation more complicated, not simpler. When you receive Bitcoin as casino winnings, you’re potentially creating two separate taxable events:

First Taxable Event: Gambling Income When you win cryptocurrency at a casino, you must report the fair market value of that crypto in USD as gambling income. For example, if you win 0.25 Bitcoin when Bitcoin is trading at $40,000, you have $10,000 in taxable gambling income—even if you never convert that Bitcoin to cash.

Second Taxable Event: Capital Gains/Losses Bitcoin is classified by the IRS as property, not currency. This means that when you eventually sell, spend, or exchange your Bitcoin winnings, you’ll face capital gains or losses taxation based on how the Bitcoin’s value has changed since you received it.

Let’s say you won that 0.25 Bitcoin when it was worth $40,000 (creating $10,000 in gambling income). Six months later, you sell it when Bitcoin is worth $50,000 per coin. Now you have an additional $2,500 in short-term capital gains to report and pay taxes on.

The opposite scenario can happen too: if Bitcoin’s value drops to $30,000 when you sell, you’d have a $2,500 capital loss that could potentially offset other gains—but you’d still owe taxes on the original $10,000 gambling income.

Crypto Casinos Don’t Handle Tax Withholding

Traditional US casinos are required to withhold 24% federal taxes on winnings over $5,000 and provide you with Form W-2G documenting your winnings. Crypto casinos, especially offshore ones, don’t do this. They won’t:

• Withhold taxes from your winnings
• Send you tax documents at year-end
• Report your winnings to the IRS
• Provide guidance on tax obligations

This means the entire burden of tax compliance falls on you. You must track your winnings, calculate the USD value at the time of each win, maintain detailed records, and report everything accurately on your tax return.

Record-Keeping Requirements

Since crypto casinos don’t provide the documentation you’d get from regulated US casinos, meticulous record-keeping becomes crucial. For each gambling session, you should document:

For Gambling Income:

• Date and time of each winning session
• Fair market value of Bitcoin (or other crypto) at the time of winning
• USD equivalent of all winnings
• Screenshots or records from the casino platform
• Blockchain transaction records showing transfers to your wallet

For Capital Gains/Losses:

• Date you received the crypto winnings (your cost basis date)
• Fair market value when received (your cost basis amount)
• Date you sold, spent, or exchanged the crypto
• Fair market value when disposed of
• Calculation of gain or loss

Professional tax software or a qualified accountant familiar with cryptocurrency can help ensure you’re tracking everything correctly.

How to Report Bitcoin Casino Winnings

Bitcoin casino winnings require reporting on multiple tax forms:

Form 1040 Schedule 1: Report gambling winnings on line 8b as “Other Income.” This includes the USD value of all crypto winnings at the time you received them.

Form 8949 and Schedule D: Report capital gains or losses when you sell or exchange your crypto winnings. This is separate from and in addition to the gambling income.

Schedule A (if itemizing): You can deduct gambling losses up to the amount of your winnings, but only if you itemize deductions rather than taking the standard deduction.

If you’re considered a professional gambler (gambling is your primary source of income), different rules apply and you’d use Schedule C instead.

State Tax Considerations

Don’t forget about state taxes. Most states that impose income tax will also tax gambling winnings, including crypto winnings. State tax rates and rules vary significantly:

• Some states have no income tax (like Florida, Texas, and Nevada)
• Others impose their standard income tax rates on gambling winnings
• A few states have special rates for gambling income
• Non-residents who win in certain states may face tax obligations there

Research your specific state’s requirements or consult with a tax professional who understands both your state’s laws and cryptocurrency taxation.

The Myth of Anonymity

Many players choose Bitcoin casinos thinking they offer anonymity that traditional casinos don’t. While crypto transactions don’t directly reveal your identity, this anonymity is largely illusory from a tax perspective:

• Most Bitcoin casinos require some form of identity verification
• Cryptocurrency exchanges that convert Bitcoin to cash report to the IRS
• Blockchain transactions are permanently recorded and can be traced
• The IRS has sophisticated tools for tracking cryptocurrency transactions
• Tax evasion penalties are severe, regardless of the payment method used

If you’re looking for Bitcoin casino options, check this page out: www.casinowhizz.com/bitcoin-casinos/. They provide detailed information about various crypto gambling sites, but remember that regardless of which platform you choose, your tax obligations remain the same.

IRS Enforcement is Increasing

The IRS has dramatically increased its focus on cryptocurrency taxation in recent years. They’ve:

• Added a cryptocurrency question directly to Form 1040
• Issued thousands of warning letters to crypto users
• Obtained customer data from major cryptocurrency exchanges
• Filed their first criminal charges specifically for crypto tax evasion
• Developed sophisticated blockchain analysis tools

The agency considers cryptocurrency tax compliance a high priority, and the penalties for non-compliance are substantial.

Common Misconceptions Debunked

Myth: “Offshore crypto casinos aren’t regulated, so the winnings don’t count as US taxable income.” Reality: All worldwide income is taxable to US taxpayers, regardless of the source’s regulatory status.

Myth: “If I don’t convert Bitcoin to cash, I don’t owe taxes on casino winnings.” Reality: You owe taxes on gambling income the moment you win, regardless of whether you convert to cash.

Myth: “Small amounts don’t need to be reported.” Reality: All gambling winnings must be reported, regardless of amount.

Myth: “Crypto transactions are anonymous, so the IRS can’t track them.” Reality: Blockchain transactions are permanent, public records that can be analyzed and traced.

Professional Gambling Considerations

If gambling is your primary source of income, you may be classified as a professional gambler, which changes how you report winnings and losses:

• Use Schedule C instead of Schedule 1
• Can deduct gambling-related business expenses
• Subject to self-employment taxes
• Different rules for loss deductions
• More complex record-keeping requirements

The IRS looks at factors like the time spent gambling, frequency of activity, and whether you approach gambling in a businesslike manner to determine professional status.

International Compliance Issues

US citizens must report worldwide income, including gambling winnings from foreign sources. This creates additional complications:

• FBAR Reporting: If you have more than $10,000 in foreign financial accounts at any point during the year, you must file FinCEN Form 114
• Form 8938: High-value foreign financial assets may require reporting on Form 8938
• Tax Treaties: Some countries have tax treaties with the US that affect gambling income taxation

These requirements apply even to cryptocurrency held in foreign wallets or exchanges.

Practical Tax Planning Strategies

While you can’t avoid taxes on gambling winnings, you can optimize your approach:

Timing Dispositions: If your Bitcoin winnings have increased in value, consider holding for more than one year to qualify for long-term capital gains rates (generally lower than ordinary income rates).

Loss Harvesting: If you have crypto gambling losses, realize them in the same tax year to offset gains.

Estimated Payments: Large winnings may require quarterly estimated tax payments to avoid penalties.

Professional Help: Consider hiring a CPA experienced with both gambling income and cryptocurrency taxation.

Documentation Best Practices

Create a systematic approach to documentation:

• Use spreadsheet software to track all gambling activities
• Take screenshots of significant wins
• Save blockchain transaction records
• Research historical crypto prices for accurate USD valuations
• Keep records for at least seven years (the IRS statute of limitations for certain situations)

What Happens If You Don’t Report

The consequences of failing to report crypto gambling winnings can be severe:

• Civil Penalties: 20% of unpaid taxes plus interest
• Criminal Charges: Willful tax evasion can result in up to 5 years in prison
• Additional Penalties: Failure to file and failure to pay penalties compound the problem
• Audit Risk: Unreported income discovered during audits leads to expanded scrutiny

The Bottom Line

Withdrawing casino winnings to Bitcoin doesn’t eliminate your tax obligations—it often complicates them. You’ll owe taxes on the gambling income when you win, and potentially additional capital gains taxes when you eventually dispose of the Bitcoin.

The best approach is complete transparency and compliance:

1. Report all gambling winnings as income
2. Track Bitcoin values carefully for capital gains calculations
3. Maintain detailed records of all transactions
4. Consider professional tax preparation help
5. Make estimated payments for large winnings

The crypto gambling world offers exciting possibilities, but it doesn’t offer an escape from tax responsibilities. By understanding and meeting your obligations upfront, you can enjoy your winnings without the stress of potential IRS problems down the road.

Remember: this article provides general information and shouldn’t replace professional tax advice. Cryptocurrency and gambling taxation can be complex, and individual circumstances vary significantly. Consult with a qualified tax professional who understands both areas to ensure you’re meeting all your obligations correctly.