I Won a $1,500 Slot Jackpot on a Cruise -- You'll Be Surprised How Much I Paid in Taxes

Cruise ship casinos follow U.S. tax law, even when sailing in international waters. If you're a U.S. citizen, winnings are subject to federal income tax and are your responsibility to claim on your tax return.

If you win more than a certain amount of money, the casino will take your personal information, including a passport or driver's license, plus your Social Security number, and will issue you a form W2-G.

When will you get a tax form?

For gambling on a slot machine, this threshold is $1,200. Any win over this amount is referred to as a "hand pay," as the casino will pay the win by hand in order to ensure it collects your tax information.

With table games, winnings are generally not documented. The exception is if you win a large amount from a side bet or progressive jackpot, as the IRS rule is that if you win an amount that exceeds 300 times your wager, there needs to be proper documentation.

Gambling winnings are federally taxable income

Here's one key point to know. If you receive a tax document (like a W2-G), you can be sure that the IRS will receive a copy as well. In other words, the IRS knows that you won a reportable jackpot.

Gambling winnings are considered federally taxable income. In addition, most states also consider gambling winnings to be taxable income. There are a few exceptions, but most of them are states that don't have a state income tax at all.

However, perhaps the most important piece of information in this article is that gambling losses can be deducted from your winnings when claiming them on your taxes.

Think of it this way. While it does happen, most of the time you won't win a slot jackpot the first time you hit the "spin" button. And even if it does, you aren't likely to get up and leave, never to gamble again for the rest of the cruise.

So, any money you spent (and lost) in pursuit of your jackpot can be used to offset your taxable winnings. As a basic example, if you sat down at a slot machine, lost $200 of your money, and then won a $1,500 jackpot, your taxable winnings would be $1,300.

Be aware that the IRS may want to see documentation, especially if you claim that you lost an amount close to or greater than your winnings. In other words, if you won a $1,500 jackpot and lost $2,000 over the rest of the cruise, you wouldn't have any taxable winnings -- but the IRS may want proof.

The good news is that with modern gaming systems, this can be rather easy. Just make sure your player's card is inserted in the machine, or that you give it to the table game dealer, every time you play, even if you use cash. This allows the casino to track your play, and you can then request a win/loss statement when it comes time to file your tax return.

How much did I pay in taxes?

In my case, I had a $1,500 win (approximately) on a cruise, but my win/loss statement from the entire five-day cruise that reflected the rest of my play showed net winnings of about $800. So, I had $800 in taxable winnings, which translates to less than $200 in taxes at my federal income tax rate.

The bottom line and key takeaway is that it's important to make sure to have your play recorded by the casino, as it could help you document a major tax break in the event you win a jackpot. Plus, tracking your play allows the cruise line to see how much you're spending, which can result in discounted or free cruise offers, free drinks, or other perks.