NJ iGaming Player’s Tax Guide Part II: New Jersey Residents

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Last time we discussed the federal income tax consequences for U.S. residents playing real-money online poker and other casino games in New Jersey.

This installment examines state tax consequences for New Jersey residents playing in New Jersey.

New Jersey residents subject to taxes on winnings

Wait, aren’t all people playing on NJ online accounts New Jersey residents? No.

Anyone over twenty-one years of age may play on New Jersey licensed sites, as long as the player is physically located in the State. To reiterate, this post covers only New Jersey residents.

New Jersey residents are required to pay New Jersey income tax on ALL income, regardless of where it is earned. To eliminate any doubt, there is a New Jersey law specifically stating that all gambling winnings are included in the New Jersey gross income tax.

All gambling winnings on NJ sites won by NJ residents are reportable on NJ-1040.

Differences between NJ state tax and federal tax

Unlike on the federal tax return, where gambling losses are separately reported on Schedule A, gambling losses on the New Jersey return are netted against gambling winnings.

A taxpayer’s “net gambling winnings” are reported on line 23 of the NJ-1040.

The 2013 NJ-1040 instructions recommend taxpayers who report net gambling winnings to include a supporting schedule with the tax return, although it is not required.

How to track gambling winnings and losses for NJ

Here’s what the NJ Division of Taxation has said about some types of evidence to prove gambling activity:

With respect to winnings or losses resulting from casino gambling, letters from casinos which purport to “rate” the gambling activity of an individual or “estimate” losses are not acceptable alone as evidence of gambling losses.

However, they are acceptable as part of the taxpayer’s proofs of wins and losses. The Division also accepts records from the casinos detailing an individual’s casino credit history.

I touched upon this last week: Records from the casino combined with other records may be sufficient, but alone they may not be enough to survive scrutiny from the tax authorities.

If gambling losses are disallowed, a taxpayer is subject to owe additional tax, interest, and penalties.

What constitutes a NJ resident?

So who is considered a New Jersey resident for tax purposes?

There are two types of residents under New Jersey law:

  1. Domicile: In general, a taxpayer who is domiciled in the State is a New Jersey resident.

  2. Statutory Resident: A taxpayer who (a) maintains a permanent place of abode in NJ AND (b) spends in the aggregate more than 183 days of the taxable year in this State, is a New Jersey resident.

Domicile analysis is a facts and circumstances determination, and we won’t go into the details here.

A 2005 tax case about retired hockey player Kjell Samuelsson (Samuelsson v. Director, Div. of Taxation, 22 N.J. Tax 243 (2005)) explains:

Domicile is a matter of intent involving physical presence or contact with the given jurisdiction and an intention to remain in that jurisdiction or to return to that jurisdiction after leaving it. Once established, a domicile continues until superseded by a new one.

A permanent place of abode is a residence maintained permanently as a household, whether or not actually lived in.

For more on domicile and permanent place of abode issues, see this bulletin from the New Jersey Division of Taxation.

What are the state tax implications for players who are not considered New Jersey residents? Next time we will focus on players from other states traveling into NJ to play online.

Disclaimer: Nothing contained in this article is specific legal advice, as each person’s situation is different. Contact a tax professional to discuss particular facts and circumstances.

IRS Circular 230 Notice: This article is not intended to be used, and it cannot be used by any taxpayer, for the purpose of avoiding federal tax penalties that may be imposed on a taxpayer.

- Brad is a tax attorney and accountant in New York, and assists gaming industry stakeholders with evaluating various tax considerations for entering into the U.S. internet gaming space. He also represents taxpayers in disputes with the Internal Revenue Service and the New York State Department of Taxation and Finance. E-mail: [email protected] Twitter: @taxdood
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