They are taxed, but losses are deductible. It's taxed basically the same as everything else. At the end of the year you tally your earnings and losses, subtract the losses from the earnings and pay taxes on that amount or $0, whichever is higher (i.e. you can't deduct more losses than you had in winnings).

I googled because I was curious and found an article about it [1]. It's similar to PayPal/Venmo/etc. Once your winnings meet certain criteria, the casino has to give you an IRS form (W-2G) and they presumably send another copy to the IRS.

The withholding part isn't super clear, but I guess under some circumstances they also withhold 24% of those winnings to pay federal taxes.

1: https://www.hrblock.com/tax-center/income/other-income/gambl...