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?
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.
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, gambling losses are deducted as an itemized deduction on Schedule A. You must itemize (rather than take the standard deduction) to get any benefit from your losses. 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 reportable gambling winnings for NJ income tax. This applies to both residents and nonresidents.
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 also included.
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 provides a credit for taxes paid to other jurisdictions to prevent double taxation. If Pennsylvania or Connecticut taxes your gambling winnings earned in those states, you can claim a credit on your NJ-1040 for the tax paid.
However, the credit is limited to the NJ tax attributable to that income. If the other state's rate is higher than NJ's rate on the same income, you won't recover the full amount.
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 lottery prizes under $10,000 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. 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.
Are NJ lottery winnings taxable?
NJ lottery prizes under $10,000 per individual drawing are exempt from NJ income tax. 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.
