Yes, 25% becomes your new tax bracket. But your tax bracket is only your MARGINAL tax rate. That is, only an additional $ of income is taxed at 25%. In the example you gave ("yearly income puts you in the 15% tax bracket after AGI) your regular income will only be taxed at 15% (some will actually only be taxed at 10%). Some of he gambling winnings will be taxed at 15% and some at 25%. Bottom line for you (if the example fits you) is that you will be getting back some of that 25% withheld on the winnings.
