In a casino, a win is a win until the taxman cometh. Then the amount the gambler takes home depends on the tax laws, an area no sane man stumbles into gladly.
According to IRS representatives in Las Vegas and San Diego, there are basically two ways in which a gambler’s winnings are affected by the tax laws — the amount won and the odds that applied to the gambler’s bet.
In two of the most popular forms of gambling — slots and video poker — the tax laws are fairly clear cut if the gambler hits for $1,200 or more. In that case, the lucky winner must sign a W2G form that the casino then sends on to the IRS. Generally, no withholding is taken from the jackpot.
For live keno players, the amount has to reach $1,500 or more before a winner must sign a W2G.
For another popular form of gambling, sports parlay cards, the rules stipulate that the winner must win at least $600 and that the winnings must exceed the original wager by 300 times or more.
Thus, a parlay bettor who wins $7,500 after betting $150 at odds of 50-1 isn’t required to sign a W2G, while a player who wins $3,500 after betting $10 at odds of 350-1 must sign off.
The IRS stresses that all winnings must be reported and a person’s tax liability at the end of the year will hinge on a number of factors, and sometimes a gambler will regain the amount withheld if his liability is less than the amount he has already paid.
While the rules for keno and slots hinge on the amount won, the rules for tax liability for other games are shaped by the 300-1 guideline. The IRS says that for all practical purposes, the 300-1 odds rule excludes most table game bets (blackjack, craps, baccarat and roulette) and straight sports bets from withholding.
For pari-mutuel betting that includes horse racing, dog racing and jai alai with proceeds of more than 300 times the amount wagered, the winner must also have won more than $600 with his bet in order to sign a W2G.
For sweepstakes and lotteries, the proceeds must exceed $5,000 for a W2G to be filed.
In a release from the IRS office in San Diego, the agency gives a broad overview of when taxes could actually be withheld from the winnings: In all cases the threshhold amount is $5,000 and 27 percent of the proceeds may be withheld if the winnings come from a sweepstakes or lottery pool, a pari-mutuel pool in which the winning odds exceed 300-1 or a sports contest in which the odds are greater than 300-1.
However, if the gambler does not provide his Social Security number to the casino, the amount withheld will be 30 percent.
That’s assuming the casino will even pay a jackpot to someone without a social security number. In the past, casinos have failed to pay jackpots when the winner was unable to produce proof of age and/or a social security number.
Winnings from slot machines and certain other games by non-resident aliens are subject to withholding of a 30 percent tax unless they are from what the IRS calls a treaty country and they have an Individual Taxpayer Identification Number (ITIN).
No tax is imposed on non resident aliens whose winnings are derived from the following games: blackjack, baccarat, craps, roulette and the Big 6 wheel. An ITIN is a nine-digit number issued by the U.S. Internal Revenue Service to individuals who are required to have a U.S. taxpayer identification number but who do not have and are not eligible to obtain a social security number.
The IRS says the full amount of a gambler’s winnings must be reported on their 1040. If the gambler itemizes deductions, he can deduct his gambling losses for the year on line 27 Schedule A (form 1040).
The IRS advises gamblers to keep an accurate diary or similar record of wins and losses. In order to deduct losses, the gambler must be able to provide receipts, tickets, statements or other records that show the amount of both his winning and losses.
Keep in mind, the best advice regarding gambling winnings is to check with a qualified accountant or tax attorney. Nothing in this article should be construed as tax advice.