There have been some stupendous U.S. casino wins, including a $21 million dollar slot machine hit in 2005. Not surprisingly, gambling winnings such as those from casino jackpots are taxable income, according to the Internal Revenue Service. It also shouldn't be surprising that unemployed people may be gambling in casinos, with some occasionally hitting a jackpot. Although hitting a casino jackpot won't normally affect your unemployment benefits, don't even think about skipping out on reporting those winnings to your unemployment office.
State Unemployment Benefits
Unemployment benefits are paid out by states through their unemployment insurance programs. Both employees and their employers pay into state unemployment insurance benefits programs, and states closely watch what they pay out. To ensure that only the genuinely unemployed receive approved benefits, states require participants to report all earned or unearned income they receive. Often, the income you earn while drawing unemployment benefits may reduce your benefit amount, but unearned income -- from legalized gambling, for example -- probably won't.
Unemployment and Income
Earned income includes income gained from performing work or by selling something. The rules for what constitutes earned or unearned income while drawing unemployment benefits vary by state. States such as California do require unemployment benefits recipients to report any income received, whether earned or unearned. However, California, Alaska and other states also classify winnings from legalized gambling as unearned income. In Alaska, for example, winnings from legalized gambling aren't counted against unemployment benefits or payment amounts, though they must be reported.
Reporting Gambling Winnings
Every state has its own rules for how to report any unearned income received while drawing unemployment benefits. Alaska says that it's the unemployment benefit recipient's responsibility to provide proof of income, such as through a written statement, from gambling winnings. Additionally, most states require that unearned income be reported either in the month or the quarter it's received. In California, while you're drawing unemployment benefits, you can report receipt of earned and unearned income using online, phone or letter mail processes.
Failing to Report
Depending on the amount you win through gambling, you may receive an IRS Form 1099 or W2-G from the casino or other gambling sponsor. IRS rules also require that sponsors of legalized gambling report gamblers winnings over a minimum amount. Many state taxation agencies require sponsors of legalized gambling to report gamblers' winnings as well. In other words, the state paying you unemployment benefits may find out whether you fail to report gambling winnings when required to do so.
- Cornell University Law School: Unemployment Compensation
- State of Alaska Department of Public Assistance: 441-2J. Prizes
- County of San Diego Health and Human Services Agency: 63-223 Unearned Income
- Prism Casino Blog: What Are the 5 Biggest Casino Payouts Ever Awarded?
- Las Vegas Sun: Nine of the biggest Las Vegas jackpots
Tony Guerra served more than 20 years in the U.S. Navy. He also spent seven years as an airline operations manager. Guerra is a former realtor, real-estate salesperson, associate broker and real-estate education instructor. He holds a master's degree in management and a bachelor's degree in interdisciplinary studies.