How Crypto Casino Winnings Are Taxed in Vermont
When you participate in online crypto casinos, sportsbooks, or social sweepstakes from Vermont, your tax obligations involve two independent layers of government authority: the federal Internal Revenue Service (IRS) and the Vermont Department of Taxes.
Gambling winnings are fully taxable on Vermont Form IN-111.
Federal Tax Still Applies
Regardless of Vermont’s state-level tax rate, federal income tax applies to 100% of your gambling winnings. The IRS classifies gambling proceeds as ordinary taxable income (IRC § 61), reported on Form 1040, Schedule 1.
- Federal Brackets: Marginal tax rates range from 10% to 37%.
- 2026 Federal Loss Limitation: For tax years beginning in 2026, IRC § 165(d) generally limits the wagering-loss deduction to 90% of wagering losses for itemizers, and the deduction cannot exceed wagering gains.
- No Form Exemption: Offshore crypto casinos rarely issue Form W-2G or Form 1099, but federal reporting is legally mandatory for all taxpayers upon constructive receipt of winnings.
- Withholding: If playing at a licensed domestic facility, 24% federal backup withholding may apply on eligible payouts.
Vermont Income Tax Treatment of Gambling Winnings
The Vermont Department of Taxes administers state tax rules under 32 V.S.A. § 5811; Department of Taxes Technical Bulletins. Vermont's individual tax rate structure is classified as graduated:
Summary of Rates: 3.35%, 6.60%, 7.60%, 8.75%.
Can You Deduct Gambling Losses in Vermont?
Vermont allows gambling losses on Vermont Schedule IN-155 (Itemized Deductions). Under 32 V.S.A. § 5811, Vermont connects to the IRC on a rolling basis, incorporating federal Schedule A limits including the 2026 90% wagering loss cap, subject to Vermont's state itemized deduction cap.
What Happens If You Receive Winnings in Bitcoin or Crypto?
Vermont conforms to federal property classification; crypto winnings are ordinary income upon taxable receipt, capital gains taxed at progressive rates up to 8.75% with a limited capital gain exclusion.
This establishes the Two-Stage Tax Rule for Vermont residents:
- Stage 1 (Gambling Income): You owe ordinary income tax on the U.S. dollar fair market value of the cryptocurrency at the exact moment of taxable receipt (actual or constructive receipt and dominion/control).
- Stage 2 (Capital Gains/Losses): When you later sell, swap, or spend that cryptocurrency, you incur a capital gain or loss equal to the difference between your disposal proceeds and your original adjusted cost basis established upon receipt.
Example: Crypto Casino Winnings in Vermont
Example Tax Calculation for a Vermont Resident:
- • Scenario: You win $10,000 worth of Ethereum on an online crypto casino during 2026.
- • Federal Income Tax (e.g. 24% bracket): $2,400 owed to the IRS on Form 1040. Under the 2026 federal rule, Schedule A wagering losses are limited to 90% of losses.
- • Vermont State Income Tax (3.35%, 6.60%, 7.60%, 8.75%): Subject to Vermont's progressive brackets on Vermont Form IN-111.
- • Subsequent Crypto Gain: Selling the Ethereum after price appreciation triggers capital gains taxation under Vermont Department of Taxes rules.
Resident vs. Nonresident Rules in Vermont
Residents: Vermont residents are taxed on all worldwide gambling winnings and crypto capital gains.
Nonresidents: Nonresidents report Vermont-sourced income on Schedule IN-113.
State Withholding and Reporting Requirements
Vermont requires 6.0% state withholding on gambling winnings subject to federal withholding.
Records Crypto Casino Players in Vermont Should Keep
To substantiate tax returns under audit review by the IRS or the Vermont Department of Taxes, players should maintain detailed contemporaneous logs (IRS Rev. Proc. 77-29) containing:
- Blockchain wallet addresses and on-chain Transaction IDs (TxIDs) for all deposits, bets, and cashouts.
- Timestamped historical U.S. dollar fair market value records on the dates of each winning and losing session.
- Exchange and bank statements verifying fiat on-ramp basis and withdrawal settlements.
- Game session logs, platform account history, and betting records.
Tax Rules vs. Gambling Legality
For detailed information regarding the regulatory and statutory status of online gambling, sportsbooks, and sweepstakes casinos in this jurisdiction, review our dedicated Vermont iGaming & Casino Regulatory Guide.
Official Vermont Tax Sources
What to Watch in 2026
Tax authorities continue expanding digital asset compliance monitoring via Form 1099-DA broker reporting rules. Vermont taxpayers engaging in cryptocurrency iGaming should consult a qualified Certified Public Accountant (CPA) or tax attorney to ensure full compliance with evolving state and federal standards.
Frequently Asked Questions
Are crypto casino winnings taxable in Vermont?
Yes, crypto casino winnings are subject to both federal and Vermont state income tax. Under Vermont Department of Taxes regulations, residents must report the U.S. dollar fair market value of all cryptocurrency winnings as taxable income at Vermont's 3.35%, 6.60%, 7.60%, 8.75%. Federal tax rules additionally apply, including the 2026 statutory 90% wagering-loss deduction limitation under IRC § 165(d) for itemizing taxpayers. Subsequent disposal of winning crypto tokens also triggers capital gains or loss calculations.
How does the 2026 federal 90% loss limitation affect Vermont taxpayers?
For federal income tax returns in 2026, IRC § 165(d) limits wagering loss deductions to 90% of losses on Schedule A. State-level treatment depends on Vermont's specific tax code: Vermont allows gambling losses on Vermont Schedule IN-155 (Itemized Deductions). Under 32 V.S.A. § 5811, Vermont connects to the IRC on a rolling basis, incorporating federal Schedule A limits including the 2026 90% wagering loss cap, subject to Vermont's state itemized deduction cap.
Can I deduct my crypto gambling losses on my Vermont tax return?
Vermont allows gambling losses on Vermont Schedule IN-155 (Itemized Deductions). Under 32 V.S.A. § 5811, Vermont connects to the IRC on a rolling basis, incorporating federal Schedule A limits including the 2026 90% wagering loss cap, subject to Vermont's state itemized deduction cap.
What state tax forms do I need in Vermont?
Vermont Form IN-111, Schedule IN-155, Technical Bulletin TB-60
How does the two-stage crypto tax rule work in Vermont?
You first report the U.S. dollar value of winning tokens as ordinary gambling income upon taxable receipt. When you later sell or trade those tokens, you calculate capital gain or loss based on your cost basis established upon receipt.