The IRS Proposes New Tax Regulations for Gamblers Who Report Winnings

Last updated on November 2nd, 2018

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With tax season upon us, gamblers who had a good 2014 have to consider how to report their winnings. Most of us don’t have that problem, but those who do might soon have new forms to fill out. Some of the tax options might make filing a return simpler for gamblers, though.

The Internal Revenue Service recently proposed regulations for gamblers who report winnings on three types of betting: slot machines, keno, and bingo. The IRS also proposed an optional safe harbor method of determining gains or losses from electronically-tracked slot machines.

1977 IRS Gaming Law

Current regulations are based on a 1977 federal law. Under the current law, slot machine, bingo, and keno winnings are determined back on the value of the original wager. In effect, players who win $1,200 or more on slots or bingo must report their winnings. Players who receive $1,500 or more must report their winnings.

W-2G Tax Form

All winnings from slot machines, keno lotteries, and bingo games should be reported on the Tax Form W-2G, which has “Certain Gambling Winnings” at the top fo the page. The payer needs to provide this form to the payee by January 31 of the next year. The payer must file the form with the IRS by February 28 of the following year (file in 2015 of the year 2014).

Reasons for Change

The IRS decided it needs to make changes because major changes have occurred in the gambling industry since last policy changes were made in 1977. Technology has evolved significantly, as electronic slot machines and slots cards did not exist the last time the policies were tweaked. Of course, online and mobile gambling did not exist at all.

Changes to the Form W-2G e-filing policies have been made, too. The reason for the new e-filing policies is to make the process of reporting simpler. The proposed new regulations include requiring “persons engage in a trade of business” has now been extended to non-profit organizations, including tax-exempt organizations and governmental entities.

The same thresholds for the reporting of winnings has been retained. When considering the winnings for keno, a player can figure in the amount of money spent on the keno wager (because this money is kept by the organizer). For slots and bingo, the amount wagered is not factored into what is reported.

“On a Session Basis”

The money won or lost is determined on a session basis. That is, if you played a slot machine for 2 hours and won $500 during that time, but lost back $600, the slots session would cost as a $100 loss. The $500 won would not be taxed.

The specific section of the policy paper addressing this question states “the gross income from electronically tracked slot machine play is determined on a session basis”. This is a forgiving policy, though it’s the only realistic one available. If the government took a part of every single wager won or lost, it would amount to the government having its own rake in each hand. While some tax assessors might prefer to see that happen, it would be a level of intrusion most regulators would see as unreasonable.

Exempted Forms of Gaming

The new regulations which are being proposed would not involve table games like blackjack, roulette, and craps. Poker, which is often considered separate from most other games on the casino floor (because it’s housed in its own room), is also not a part of the IRS changes. Sports betting and horse racing are not included. Finally, lottery games are not included, because the tax liability is taken out of the winnings before a player receives the payout (since the state holds the money already).

House Edge and Gaming Revenues

Besides poker players, lottery winners, and progressive slot machine jackpot winners, most gamblers are not going to have to worry about W-2G tax forms. In fact, due to the house edge, reporting the winnings from your gambling hobby is probably the least of your worries. Opulent casinos are built on the idea that casinos always win. Blackjack and video poker have a house edge of less than 1%, so those who gamble moderately and understand those games might have winning years.

For most of the rest of the gambling community, if you play regularly throughout the year, you won’t have to worry about reporting gaming revenues. If you win a $1,200 jackpot anytime throughout the year, though, you’ll want to make records and report it to the IRS, if you want to stay within the US tax code.