Quick Answer: New Jersey taxes all gambling income as ordinary income at rates from 1.4% to 10.75%. NJ allows gamblers to net wins and losses on the NJ-1040 (even if you don't itemize federally), but net gambling income cannot go below zero. NJ Lottery prizes of $10,000 or less per drawing are exempt at the state level (this exclusion applies only to New Jersey Lottery prizes, not out-of-state lottery tickets). NJ imposes a 3% withholding on certain casino and racetrack winnings.
In This Article
- Are All Gambling Winnings Taxable in New Jersey?
- How Does New Jersey Handle Gambling Losses: What Is the Netting Method?
- How Is NJ Lottery Income Taxed? Special Rules Explained
- When Does NJ Withhold 3% on Casino and Racetrack Winnings?
- How Are DraftKings, FanDuel, and NJ Sportsbook Winnings Taxed?
- If I Gamble in Multiple States, What Do NJ Residents Need to Know About Taxes?
- Do Gamblers Need to Make Quarterly Estimated Tax Payments?
- The Bottom Line for NJ Gamblers
- Key Takeaway
- Ready to File With Confidence?
NJ vs. Federal - 4 Key Differences
- NJ allows full netting of wins and losses on the NJ-1040. Federally, casual (nonprofessional) gamblers must itemize on Schedule A to deduct losses (professionals report on Schedule C) - and starting 2026, only 90% of losses are deductible.
- NJ 3% withholding on certain casino and racetrack winnings (separate from the 24% federal withholding).
- NJ Lottery prizes of $10,000 or less from a single drawing are not taxable at the state level (this applies only to New Jersey Lottery prizes - an out-of-state lottery ticket does not qualify, whatever the size). Federally, all lottery winnings are taxable.
- NJ doesn't follow the 90% federal loss cap. Under NJ law and Division guidance in force as of mid-2026, NJ continues to allow 100% netting for 2026 activity. (The latest published form is the tax-year 2025 NJ-1040, which reports net gambling winnings on Line 24 - verify the line on the 2026 form when it is released.)
New Jersey is one of the largest legal gambling markets in the country. Between Atlantic City's casinos, the state's online sportsbooks, and the NJ lottery, millions of residents generate gambling income every year.
Most people have a rough idea that gambling winnings are taxable federally. Far fewer understand how New Jersey specifically handles gambling income - and the state rules differ from federal in several important ways.
Greg Monaco is a NJ-licensed CPA (License #20CC04711400) who prepares tax returns for gamblers, sports bettors, and poker players through the tax preparation services. Here's his breakdown of how NJ taxes your gambling activity.
Are All Gambling Winnings Taxable in New Jersey?
New Jersey taxes all gambling income - sports bets, casino winnings, poker, lottery, horse racing, online gambling - as ordinary income. There is no special rate or exemption for gambling. It's taxed at the same graduated rates as wages and salary, ranging from 1.4% on the first $20,000 up to 10.75% on income over $1 million.
This applies to NJ residents on all their gambling income regardless of where the gambling took place. If you're a NJ resident who wins at a Las Vegas casino, that income is taxable on your NJ-1040.
For nonresidents, NJ taxes gambling winnings from NJ sources - meaning winnings from Atlantic City casinos, NJ racetracks, and NJ-licensed online sportsbooks and casinos.
The netting computation is source-limited for nonresidents: NJ-source winnings net against losses attributable to NJ sources. Out-of-state gambling losses do not reduce NJ-source winnings - a Pennsylvania resident with a $30,000 Atlantic City win and $30,000 of Pennsylvania losses does not report zero to NJ. Part-year residents must also split the year: worldwide gambling activity during the resident period, NJ-source-only activity during the nonresident period. One annual platform total cannot silently cross those periods - split your ledger at the move date.
Source: NJ Division of Taxation - Lottery and Gambling Winnings
How Does New Jersey Handle Gambling Losses: What Is the Netting Method?
This is the most important NJ-specific rule to understand - and it's an advantage over federal treatment.
Federally, casual (nonprofessional) gamblers deduct gambling losses as an itemized deduction on Schedule A. You must itemize (rather than take the standard deduction) to get any benefit from your losses; professional gamblers reporting a trade or business use Schedule C instead. And starting in 2026, only 90% of losses are deductible under the OBBBA's amendment to Section 165(d). Read more about the 90% cap
NJ uses a different approach. New Jersey allows gamblers to net their winnings and losses to arrive at "net gambling winnings" on the NJ-1040. You report the net amount - winnings minus losses - but the net cannot be less than zero.
This means if you won $30,000 and lost $30,000, your net NJ gambling income is zero. If you won $30,000 and lost $40,000, your net NJ gambling income is still zero (not negative $10,000 - you can't create a net gambling loss in NJ).
The key distinction: this netting happens whether or not you itemize. Even NJ taxpayers who take the federal standard deduction can net their gambling losses against winnings on the NJ return. This is more favorable than the federal approach for taxpayers who don't itemize.
And critically for 2026: NJ still allows 100% netting. The federal 90% cap does not apply to the NJ-1040. A break-even gambler who owes federal tax on phantom income may still owe zero NJ tax on their gambling activity.
If you report net gambling winnings on your NJ return, you must attach a supporting statement showing your total winnings and total losses. Documentation is required.
Source: NJ Division of Taxation - TB-20(R), Gambling Winnings or Losses
How Is NJ Lottery Income Taxed? Special Rules Explained
NJ has specific rules for lottery winnings that differ from general gambling income.
Individual NJ lottery prizes exceeding $10,000 are taxable. The key word is "individual" - it's the size of each individual prize, not your total annual lottery winnings, that determines taxability.
If you win two NJ lottery prizes in the same year of $5,000 and $6,000 respectively, neither is taxable at the NJ level - because neither individual prize exceeds $10,000. But if you win a single prize of $11,000, the entire amount is taxable.
NJ withholds income tax on taxable lottery winnings at the following rates: 5% on prizes between $10,001 and $500,000, and 8% on prizes over $500,000. An 8% rate also applies to prizes over $10,000 when the winner doesn't provide a valid Taxpayer Identification Number.
These withholdings are credited against your NJ tax liability when you file your return. If too much was withheld, you receive a refund.
Source: NJ Division of Taxation - Lottery and Gambling Winnings
When Does NJ Withhold 3% on Casino and Racetrack Winnings?
NJ casinos and racetracks withhold 3% of certain winnings for NJ income tax, and this applies to both residents and nonresidents. The trigger follows the federal regular-withholding rules under IRC §3402(q) (N.J.A.C. 18:35-7.6) - not the W-2G reporting thresholds - so a W-2G can exist with no NJ withholding at all. Slot, keno, and bingo payouts are excluded; NJ Lottery uses its own 5%/8% schedule.
This withholding appears on your W-2G and is reported on your NJ-1040 as a tax payment. If the 3% exceeds your actual NJ tax liability on the gambling income (because your effective NJ rate is lower than 3%), you'll get a refund of the excess.
If the 3% withholding is less than your actual NJ tax liability - which is common for higher-income taxpayers - you'll owe the difference when you file.
How Are DraftKings, FanDuel, and NJ Sportsbook Winnings Taxed?
Sports betting winnings from NJ-licensed sportsbooks are taxable as ordinary income in NJ, just like casino winnings. This includes online sports betting through DraftKings, FanDuel, BetMGM, Caesars, and all other licensed operators, as well as in-person betting at NJ casinos and racetracks. Daily fantasy sports (DFS) contest winnings are taxable in NJ as well - but note that NJ's Fantasy Sports Act classifies qualifying DFS as skill-based rather than gambling, so whether DFS nets inside the gambling category is a position decision (see the fantasy sports guide).
Most online sportsbooks provide year-end tax summaries showing your total activity. These are essential for accurate reporting. Download your statements from every platform you used during the year.
A note on NJ operator taxes and your betting experience. As of July 1, 2025, NJ raised the tax rate on online casino and sports betting operator revenue to 19.75%. This is a tax on the operators, not directly on your personal income tax. However, bettors may notice the effects in the form of less favorable odds and fewer promotional offers - which means your year-end tax position could be affected by reduced bonus bet availability.
Free bets and bonus bets. Tax treatment of promotional credits can be complicated. The conservative and generally recommended reporting approach treats the full payout from a bonus bet as gambling income, without treating the promotional credit as a deductible "loss" unless you have a clear cost basis. For example, a $200 bonus bet that pays $600 is most safely reported as $600 in gambling winnings. If this applies to you, a CPA can help determine the most accurate and defensible position.
If I Gamble in Multiple States, What Do NJ Residents Need to Know About Taxes?
If you're a NJ resident who gambles in other states - Pennsylvania, Connecticut, Nevada, or anywhere else - those winnings are taxable on your NJ return as part of your total income. You may also owe tax in the state where you gambled.
NJ gives residents a credit (Schedule NJ-COJ) for income tax properly imposed by another state on income NJ also taxes in the same year - but it is not automatic and it is not your withholding. Four things matter for gamblers: (1) the other state must actually tax nonresident gambling winnings (Pennsylvania does; Connecticut generally does not tax a nonresident's casual gambling, so there is usually no CT tax to credit); (2) the credit is measured by the tax due on your completed nonresident return, not the amount withheld - over-withholding comes back from that state, not from NJ; (3) the credit is the lesser of the other state's actual tax on that income and the proportional NJ tax on the same income; and (4) if a state withheld tax it was not entitled to, the fix is a refund claim to that state, not an NJ-COJ credit.
Do Gamblers Need to Make Quarterly Estimated Tax Payments?
If your gambling winnings are significant and not fully covered by withholding, you may need to make estimated tax payments to avoid NJ underpayment penalties. This is particularly relevant for professional gamblers, high-frequency sports bettors, and anyone with large sporadic wins (like a major tournament cash or a big slot jackpot).
NJ estimated payments are due quarterly: April 15, June 15, September 15, and January 15. Use Form NJ-1040-ES.
The Bottom Line for NJ Gamblers
NJ's gambling tax rules are more favorable than many states - and more favorable than federal for 2026, since NJ still allows full netting while the federal government caps deductions at 90%. But the state still taxes gambling income at ordinary rates up to 10.75%, with no preferential rate or special treatment.
Understanding the NJ-specific rules, particularly the netting method, the lottery thresholds, and the 3% withholding, helps you file accurately and avoid overpaying on either return.
A note for prediction market traders. If your activity is classified as capital gains rather than gambling, NJ's rules change significantly: NJ taxes all capital gains at ordinary rates with no preferential long-term rate, and critically, NJ does not allow capital loss carryforward. A $50,000 loss in one year followed by a $50,000 gain the next results in zero federal tax but potentially over $5,000 in NJ tax. The classification you choose has major NJ-specific consequences. Read the full prediction market tax analysis →
Key Takeaway
New Jersey's gambling tax rules differ from federal in several important ways that benefit NJ taxpayers. The netting method allows you to offset losses against winnings without itemizing, NJ still allows 100% netting (no 90% cap), and NJ Lottery prizes of $10,000 or less per drawing are exempt at the state level. Understanding these differences can significantly reduce your combined federal and NJ tax bill. Learn about the gambling tax services
Related reading: The 90% Gambling Loss Cap | DraftKings & FanDuel NJ Tax Guide | Prediction Market Taxes: Kalshi, Polymarket, Robinhood | Gambling tax services
## Frequently Asked Questions
Can NJ gamblers deduct losses without itemizing?
Yes. New Jersey uses a netting method that allows gamblers to subtract losses from winnings directly on the NJ-1040, regardless of whether they itemize on their federal return. However, net gambling income cannot go below zero on the NJ return, meaning you cannot create a net gambling loss to offset other income.
Does NJ follow the federal 90% gambling loss cap?
No. The federal OBBBA amendment to Section 165(d) caps gambling loss deductions at 90% starting in 2026, but NJ does not conform to this rule. As of mid-2026, NJ still allows 100% netting of gambling wins and losses on the NJ-1040, which means a break-even gambler may owe federal tax but zero NJ tax. (The latest published resident form is the TY2025 NJ-1040, which reports net gambling winnings on Line 24 - verify the line on the 2026 form when it is released.)
Are NJ lottery winnings taxable?
NJ Lottery prizes of $10,000 or less per individual drawing are exempt from NJ income tax; this exclusion applies only to New Jersey Lottery prizes, not out-of-state lottery tickets. Prizes above $10,000 are fully taxable at NJ's ordinary income rates. NJ withholds 5% on prizes between $10,001 and $500,000, and 8% on prizes over $500,000. All lottery winnings are taxable federally regardless of amount.
Do I need to pay NJ tax on out-of-state gambling winnings?
Yes. NJ residents must report all gambling income on their NJ-1040 regardless of where the gambling occurred. If you won at a casino in Pennsylvania or Nevada, those winnings are taxable in NJ. You may be eligible for a credit on your NJ return for taxes paid to the other state to avoid double taxation.
Ready to File With Confidence?
Tax rules change frequently. If anything in this guide applies to your situation, a quick review with a CPA can prevent costly mistakes. Greg Monaco is a NJ-licensed CPA (License #20CC04711400) who prepares every return personally.
