How Sweepstakes Casino Winnings are Taxed

Sweepstakes casinos are platforms that host games of chance including slot-style titles through a unique dual-currency system. Sweeps customers have the option to play in either of two modes:

• Gold Coins (GC): Used strictly for entertainment play and hold no real world value.
• Sweeps Coins (SC): Virtual currency used for gameplay and redeemable for gift cards real cash prizes at a ratio of 1 SC:$1.

Because sweeps gaming sites operate under sweepstakes law rather than state gaming law, their taxation rules are more complex and less straightforward. Below, we’ll cover the ins and outs of loss deductibility and IRS reporting obligations on sweeps casino winnings to help keep you in compliance with the latest tax laws.  

Disclaimer: This page is informational, not tax/legal advice. Tax rules can change. Consult your tax professional.

How the IRS treats sweepstakes winnings

• Reporting as “Other Income”: Winnings from sweepstakes-style casino games are taxed federally as “Other Income”—not as traditional gambling income. Players report these prizes on IRS Form 1040, Schedule 1.
• 1099-MISC, Not W-2G: For prize winnings totaling more than $600 in a calendar year*, sweepstakes casinos are required to issue a Form 1099-MISC (not W-2G, which is reserved for regulated gambling winnings).
• Withholding: Some platforms may automatically withhold federal tax (typically 24%) if cash prizes (minus the total wager amount) exceed $5,000.

*Note: For the 2026 tax year onward, this threshold will rise to $2,000 under the One Big Beautiful Bill Act, with further inflation adjustments after 2027.

The loss deduction debate

Federal tax code has traditionally allowed gamblers to deduct losses up to the amount of gambling winnings if they itemize deductions (on Schedule A).

A new tax provision in the Big Beautiful Bill changes this law to only allow gambling deductions up to 90% of winnings, effective in tax year 2026.

However, most experts believe these deduction rules do not neatly apply to sweepstakes winnings, creating ambiguity around how to offset sweeps gaming losses. The central debate is whether sweepstakes play qualifies as a “wager”—the prerequisite for deductibility. 

Practical advice:

• Many tax professionals advise against deducting sweepstakes losses due to the existing uncertainty, though opinions on the matter vary.
• Claiming sweeps casino losses as deductions may invite extra IRS scrutiny or audit risk, which could result in possible denial of the deduction and assessment of penalties.
• Always consult a tax professional to review your specific situation to ensure proper reporting of sweepstakes winnings and losses. 
• If attempting deduction of losses, strict record keeping of all transactions, purchases, gameplay, and correspondence is highly recommended. 

Which sweepstakes casinos issue a 1099 form on winnings?

Most sweepstakes platforms like Modo, High 5, Chanced, and RealPrize issue 1099-MISC tax forms when cumulative redemptions of sweepstakes coins exceed $600 in a calendar year. Expect to receive forms by early February for the prior year.

If you see an error or we’re missing data, please email us using our contact form.

Note that not all platforms comply perfectly with tax form reporting, so it’s always best to keep your own records to be safe. This table is based on information and research. It is meant to serve as a reference for players that receive a 1099, but not sure who or which casino it belongs to.

State and local tax considerations

It’s important to check local laws and state taxes before participating and before tax reporting as treatment of sweeps casinos varies widely by state. Some specifics to consider:

• Sales tax: Purchase of Gold Coins (play money currency) is subject to state sales tax in jurisdictions that tax digital products. VGW and other large operators are currently charging and remitting sales tax in multiple states, which varies by location.
• Bans and regulations: The legal status of sweepstakes casinos is increasingly contested in a number of states. Among US states where sweepstakes-style platforms with dual-currency models are either banned or actively restricted are: Montana, Connecticut, New Jersey, Washington, Idaho, Delaware. A growing list of additional states considering bans or ramping up scrutiny of these gaming platforms include: California, New York, Nevada, Louisiana, Ohio, Maryland, Mississippi, Alabama, and Arizona.  
• Check your state sweepstakes laws and reporting guidelines: Sweepstakes laws are governed by individual states, and can be updated with new bills or state constitutional changes. Additionally, gaming regulators and attorneys general have taken varying approaches to addressing sweeps gaming companies operating within their respective jurisdictions. With sweeps gaming laws in flux across multiple states, it’s important to check your local regulations and tax obligations, as well as restrictions listed on sweeps platforms’ Terms and Conditions.   

Taxation debate for operators

Because they operate under a different section of the law, sweepstakes casinos do not pay state gaming taxes or licensing fees like regulated casinos. Instead, some now remit sales tax on digital currency purchases. State governments and regulators argue that these operators avoid meaningful tax contribution, but some operators use sales tax compliance as evidence of community contribution and good will. 

If sweeps platforms were to be regulated like state-licensed casinos, they would pay substantial gaming taxes, compliance or licensing fees, and be held to strict know your customer (KYC), responsible gambling, and platform audit requirements.

Best practices for players

• Emphasize diligent record keeping of wins, losses, purchases, withdrawals.
• Note that most sweepstakes platforms do not issue official documentation for tax purposes.
• Advise readers to retain all transaction info and correspondence with sweepstakes operators.

For customers partaking in online sweeps games, there are some important best practices to follow to protect yourself from unexpected tax obligations or penalties at the end of the year. Some key tips for sweeps players:

• Keep diligent records. Maintain detailed records of all of the following:
  • Game play and winnings
  • Purchases of gold/sweepstakes coins
  • Withdrawals/cash-outs
  • Tax forms received (1099-MISC)
  • Correspondence with sweepstakes operators
• Keep your own tax documentation. Most sweepstakes platforms will not issue official documentation beyond the 1099-MISC (if the reporting threshold is met). And some sweeps sites won’t provide any tax documentation. That means it’s crucial that you keep your own records for the purpose of:
  • Proving losses (if you attempt a deduction)
  • Responding to IRS or state audits
  • Submitting evidence if winnings are challenged

Consult a tax professional. Laws and interpretations continue to evolve around gaming tax regulations. Professional advice is strongly recommended for any online sweeps customers, and especially anyone with substantial sweepstakes activity.

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