Yes, you will still need to pay taxes on the winnings. And no - the winnings and losses will not cancel each other out.
Unfortunately, it is very common that your refund will not change after
your losses are entered. Why? Because the IRS does not permit you to simply
subtract your losses from your winnings and report your net profit or
loss.
The IRS has very specific rules and limitations as to how the gambling
losses are deducted.
First, you may deduct gambling losses (that's why we ask you enter the
amount) but it is only deductible to the extent of your winnings.
Secondly, the deduction for your losses is only available if you are
eligible to itemize your deductions (have mortgage interest, real estate taxes,
medical, charitable deductions, etc.) If you claim the standard deduction,
(because you don't have enough expenses to itemize) then you can't reduce your
tax by your gambling losses and therefore will not see your refund change at
all.
And if you happen to have a bad year, you cannot
just deduct your losses without reporting any winnings. If the IRS allowed
this, then it's essentially subsidizing taxpayer gambling. In other words,
losing money does not by itself reduce your tax bill. You need to first owe tax
on winnings before a loss deduction is available.
