Hawaii residents who gamble are facing a law just passed that says they will no longer be able to offset their winnings with their losses for Hawaii state income tax purposes.   And to add insult to injury the law is retroactive to the first of this year. 

New Hampshire also recently went from not taxing gambling income at all to a 10% tax on gross wins (“gross” means no deduction for losses). The law is not clearly written, according to some experts, and there will need to be court case to determine just which wins will need to be reported on state returns and thus incur this heavy tax. Will this impact professional gamblers? What is the minimum reportable win and does it depend on the game? Many questions need to be answered about this new state law.  

Increasing taxes on gambling is not an unusual tactic used to increase state revenue.  Following is a list of states   that also do not allow deductions for gambling losses.  (This list is from Tax Help for Gamblers, where there are more details on this subject of state taxation, including exceptions and possible ways to avoid this problem.  None of this should apply to professional gamblers as they have their own separate schedule where they can net out income and expenses.)

Connecticut

Illinois

Indiana

Louisiana

Michigan

Ohio

West Virginia 

Wisconsin

I predict that more states will look at gambling as the economy worsens.  "Sin taxes" are the easiest to get passed! 

More input on this subject from Marissa Chien, co-author with me of Tax Help for Gamblers: 

What makes the Hawaii law super lousy in comparison is that in states like Indiana and Illinois where there are no below- the-line deductions to begin with, the top income tax rate is 3-4%.  But because Hawaii allows other below-the-line deductions like mortgage interest, property taxes, etc, their top marginal rate is almost 10%. Therefore a high roller who may have a couple of million in W-2Gs would owe the state of Hawaii over 200k!! 

If you want to read more about the recent state gambling tax changes in Hawaii and New Hampshire, Google the two subjects. You will find heated discussions!

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