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Financial adviser recommends US taxpayers exercise caution with sweepstakes casino prizes

Legal Writer

Publish Date: May 15, 2026

Fact checked by: Matt Moreno

Key Points

US taxpayers are obligated to report the value of prizes claimed playing on sweepstakes casino websites on their federal income tax returns.
Attorney advises taxpayers to shy away from treating money spent purchasing digital currencies as deductible gambling losses.
People who pay income tax in the US may not receive documentation of their prizes from sweepstakes casino websites.

Taxation is the other shoe that always drops whenever there is a windfall in the United States of America. This applies to people who play on sweepstakes casino websites in the U.S. and get lucky enough to claim a prize.

The U.S. Internal Revenue Service (IRS) considers such prizes taxable income, meaning that people who pay income tax in the country must include the value of these prizes in their filings and pay any appropriate tax on the prizes. Nuances exist that taxpayers in this position should be aware of as well.

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Prizes from sweepstakes casinos qualify as taxable income

People in various U.S. jurisdictions have different tax situations in terms of local and state governments, but the common denominator for all people who owe income tax in the U.S. is the mandatory annual federal filing. That’s where all U.S. taxpayers should observe one simple rule regarding sweepstakes casino prizes: report your prize.

“Prizes and awards are included in your gross income under Treas. Reg. §1.61-14(b)(1),” explained Diana Richey, a tax attorney, certified financial planner, and author of The Loving Truth About Money. “So, if you redeem your sweeps coins and receive cash, you must report the value of that cash on your federal income tax return.”

Richey advises taxpayers to include these prize amounts on their Form 1040, Schedule 1. Accurate reporting on this form is often the result of concerted efforts at record-keeping throughout the tax year for people who play on sweepstakes casino websites.

Documentation of prize receipts may fall on players

Licensed and regulated gambling operations in US jurisdictions often issue Form W-2G to players with qualifying gambling winnings and may automatically withhold part of cash prizes for tax obligations. People who win non-cash prizes while gaming with licensed online casinos or physical casinos usually receive a 1099 stating the value of the prize.

However, people who play on sweepstakes casino websites in the U.S. may not get the benefit of this documentation.

“Many sweepstakes casinos take the position that they are not required to issue IRS Form W-2G or IRS Form 1099-MISC to users who have winnings,” Richey commented. “For example, they argue that they are not subject to the U.S. information tax reporting rules because they're not in the business of gambling or because they are based in, say, Malta.”

Richey is clear that not receiving documentation of prize values from sweepstakes casinos does not alleviate taxpayers in the US of their obligations.

“In any case, if you don't get a tax form from the casino, you'll have to sort through your own bank account history and/or use a spreadsheet to track all of the bank account deposits, Visa gift cards, crypto wallet deposits, etc. that you receive from casinos in any given year,” Richey added. “Manual tracking is a bit of a pain.”

Within the realm of gambling and taxes, the flip side to the coin of reporting winnings is deducting losses. That situation in the context of sweepstakes casino play is murky, though.

Currency purchases may not fit gambling loss deduction definitions

Under current U.S. law, people who report gambling winnings on their federal income tax returns can also deduct up to 90% of that value in gambling losses. While many people, including members of Congress, have called for that deduction threshold to rise to the 100% of winnings level it formerly sat at, the percentage is a non-issue in the context of sweepstakes casino play.

“In terms of deducting losses, it is unclear whether losses or expenses at a sweepstakes casino are ‘losses from wagering transactions’ within the meaning of the tax code. Section 165(d),” Richey stated. “The IRS hasn't issued any guidance on this point, so the most conservative approach would be to not use any losses or expenses to reduce the amount of winnings you're reporting. In other words, report all of your winnings and don't claim any offsetting loss deductions.”

The parameters for “gambling losses” may not include amounts that players spend on digital currencies to play online sweepstakes casino games because of the legal nuance around sweepstakes casino games.

“From a regulatory perspective, these sweepstakes casinos say they're not subject to the gambling laws because a user never has to pay cash to play games and win prizes,” Richey elaborated. “In legal parlance, there's no ‘consideration.’ A user theoretically could play exclusively with sweeps coins and never purchase any gold coins. Perhaps more importantly from a regulatory perspective, the casino divides paid games from free games. So, somewhat ironically, a user cannot win any cash when they're playing with gold coins. If a user plays a game with gold coins and wins big, they can win points, leaderboard advances, or the right to continue playing, but they don't win any cash. In contrast, when a user plays with sweeps coins, they can win more sweeps coins and sweeps coins are redeemable for cash, gift cards, or merchandise.”

Less than 20% of taxpayers claim itemized deductions

At the same time, the gambling losses deduction question is only relevant for people who choose to itemize their deductions.

“From a practical perspective, the deduction for gambling losses is an itemized deduction,” Richey said. “It is estimated that fewer than 20% of U.S. taxpayers claimed itemized deductions in 2025. Most taxpayers simply claim the standard deduction. So in practice, this won't make much difference for most people.”

Claiming prizes on sweepstakes casino sites can be an exciting moment in which a person enjoys being the beneficiary of some good luck. Accurate reporting and payment of taxes associated with the prizes means that these windfalls won’t end up being more trouble than they were worth for players.

If you're seeking out more news and updates, be sure to visit our Ballislife Play page.

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