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Withholding on gambling winnings (MS Word)

Withholding on gambling winnings (.pdf)

 

Withholding on gambling winnings

Dear Reader:

I'm writing you today in response to your question as to what you can expect with respect to withholding of federal income taxes from and reporting to IRS of any amounts you might win when you go to Las Vegas next week.

There are separate sets of rules that apply to (a) slot machines, bingo games, and keno; and (b) other wagering games, including poker tournaments.

Slot machine, bingo, and keno winnings. If you win $1,200 or more at a slot machine or bingo game (without reduction for the amount you put into the machine) or $1,500 or more at keno (after reduction by the amount of your keno bet), the casino must prepare and provide you and IRS with a W-2-like form called Form W-2G. You'll have to provide the casino with your name, address and social security number. (You may notice on some slot machines that the jackpot is $1,199, just below the $1,200 amount that would require you to sign the W-2G.) If you share the winnings with someone else, you can complete Form 5754. It provides the same information about the persons you share the winnings with and the casino will use it to prepare a Form W-2G for each of the winners.

Although you may have to sign the W-2G if you win the $1,200 or $1,500 amounts, the casino won't withhold from your slot machine, bingo, or keno winnings unless you fail to provide the casino with your proper social security number. If you refuse to provide it, the casino will (“backup”) withhold 28% from your winnings. And they'll have the option to reduce your winnings by the amount you bet, before computing this withholding.

In addition, the casino has to report to the Treasury department, cash payments on slot jackpots of more than $10,000, see below.

Other wagering games. If you win $600 or more in any other wagering game, and the amount you win is at least 300 times the amount you bet, the same rules as mentioned above apply regarding the requirement that you provide the casino with information and that they provide you and IRS with Form W-2G. With respect to these winnings, the casino must withhold tax at a rate of 25% from the amount of your winnings, less the amount you bet, if: (1) your winnings less your bet exceed $5,000; and (2) the winnings are at least 300 times the amount of the bet.

If you don't provide the casino with your proper social security number, and your winnings are at least $600 but not more than $5,000, the casino will withhold at the higher 28% backup withholding rate described above, and they have the option to reduce your winnings by the amount you bet, before computing the withholding.

As a practical matter, the 300 times requirement avoids both reporting and withholding for most table game winnings (absent some special, long-odds promotion the casino may be offering). However, the casino is required to report to the Treasury Department every transaction involving either cash in or cash out (for example, payments on bets, and the purchase or redemption of chips, tokens or plaques) of more than $10,000.

The reporting and withholding rules for “other wagering games” apply to poker tournaments, for payments made after Mar. 3, 2008. The requirements apply to payments of more than $5,000 made by a poker tournament sponsor, including a casino, to a winning payee in a tax year.

Finally, note that the casino won't consider the fact that you lost at some other game when applying the above rules.