How are gambling winnings reported on tax returns?

Gambling winnings are reported as ordinary income because they are considered a part of an individual's gross income. This classification aligns with the IRS guidelines that specify any gambling winnings, whether from lotteries, casinos, or other forms of gambling, must be reported on tax returns. These winnings are subject to income tax just like wages or interest income, meaning they are taxed at the individual's ordinary income tax rates. It's important for taxpayers to accurately report these winnings, as failing to do so can result in penalties from the IRS.

While certain deductible expenses related to gambling, such as losses, can be reported, they do not change the classification of the winnings themselves. Therefore, the idea is that although you can offset winnings with losses when calculating taxable income, the actual winnings are still treated as ordinary income for reporting purposes.