New York State Tax Gambling Winnings

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New York State Tax Gambling Winnings

New York State Tax Gambling Winnings Rules
New York State Tax Gambling Winnings Losses
New York State Tax Gambling Winnings Winning
Does New York State Tax Gambling Winnings
New York State Tax Gambling Winnings 2019
New York State Tax On Gambling Winnings
Information Returns When a resident of New York State, New York City or Yonkers receives any payment of $600 or more of gambling winnings during a calendar year, Form IT-2102-G is used to report these winnings to New York State. Amounts to be reported on Form IT-2102-G are the same as those reported on federal Form W-2G. New York State lottery prizes include prizes from all games conducted by the New York State Lottery, including the multi-state Mega Millions game (if the winning ticket was purchased in New York State) and video lottery games at a video-gaming facility that has been licensed by the New York State Lottery. Welcome to FindLaw's New York Gambling & Lottery Laws Center. New York laws on gambling and lotteries regulate (and in some cases prohibit) activities such as casino gaming, horse racing, and dog racing. These laws also dictate the manner in which state lottery revenues are distributed. Like most things, there is not an rate for that specific type of income.it is all much more broad: Gambling winnings are ordinary income. You will pay taxes at whatever rate is determined by your.
§ 31.3402(q)-1 Extension of withholding to certain gambling winnings.
(a)Withholding obligation - 
(1)General rule. Every person, including the Government of the United States, a State, or a political subdivision thereof, or any instrumentality of any of the foregoing making any payment of 'winnings subject to withholding' (defined in paragraph (b) of the section) must deduct and withhold a tax in an amount equal to the product of the third lowest rate of tax applicable under section 1(c) and the payment. The tax must be deducted and withheld upon payment of the winnings by the person making the payment ('payer'). See paragraph (c)(5)(ii) of this section for a special rule relating to the time for making deposits of withheld amounts and filing the return with respect to those amounts. Any person receiving a payment of winnings subject to withholding must furnish the payer a statement as required in paragraph (d) of this section. Payers of winnings subject to withholding must file a return with the Internal Revenue Service and furnish a statement to the payee as required in paragraph (e) of this section. With respect to reporting requirements for certain payments of gambling winnings not subject to withholding, see section 6041 and the regulations thereunder.
(2)Exceptions. The tax imposed under section 3402(q)(1) and this section shall not apply (i) with respect to a payment of winnings which is made to a nonresident alien individual or foreign corporation under the circumstances described in paragraph (c)(4) of this section or (ii) with respect to a payment of winnings from a slot machine play, or a keno or bingo game.
(b)Winnings subject to withholding - 
(1)In general. Winnings subject to withholding means any payment from - 
(i) A wager placed in a State-conducted lottery (defined in paragraph (c)(2) of this section) but only if the proceeds from the wager exceed $5,000;
(ii) A wager placed in a sweepstakes, wagering pool, or lottery other than a State-conducted lottery but only if the proceeds from the wager exceed $5,000; or
(iii) Any other wagering transaction (as defined in paragraph (c)(3) of this section) but only if the proceeds from the wager:
(A) Exceed $5,000; and
(B) Are at least 300 times as large as the amount of the wager.
(2)Total proceeds subject to withholding. If proceeds from the wager qualify as winnings subject to withholding, then the total proceeds from the wager, and not merely amounts in excess of $5,000, are subject to withholding.
New York State Tax Gambling Winnings Rules(c)Definitions; special rules - 

New York State Tax Gambling Winnings Rules(c)Definitions; special rules - 
(1)Rules for determining amount of proceeds from a wager - 
(i)In general. The amount of proceeds from a wager is the amount paid with respect to the wager, less the amount of the wager.
(ii)Amount of the wager in the case of horse races, dog races, and jai alai. In the case of a wagering transaction with respect to horse races, dog races, or jai alai, all wagers placed in a single parimutuel pool and represented on a single ticket are aggregated and treated as a single wager for purposes of determining the amount of the wager. A ticket in the case of horse races, dog races, or jai alai is a written or electronic record that the payee must present to collect proceeds from a wager or wagers.
(iii)Amount paid with respect to a wager - 
(A)Identical wagers. Amounts paid with respect to identical wagers are treated as paid with respect to a single wager for purposes of calculating the amount of proceeds from a wager. Two or more wagers are identical wagers if winning depends on the occurrence (or non-occurrence) of the same event or events; the wagers are placed with the same payer; and, in the case of horse races, dog races, or jai alai, the wagers are placed in the same parimutuel pool. Wagers may be identical wagers even if the amounts wagered differ as long as the wagers are otherwise treated as identical wagers under this paragraph (c)(1)(iii)(A). Tickets purchased in a lottery generally are not identical wagers, because the designation of each ticket as a winner generally would not be based on the occurrence of the same event, for example, the drawing of a particular number.
(B)Non-monetary proceeds. In determining the amount paid with respect to a wager, proceeds which are not money are taken into account at the fair market value.
(C)Periodic payments. Periodic payments, including installment payments or payments which are to be made periodically for the life of a person, are aggregated for purposes of determining the amount paid with respect to the wager. The aggregate amount of periodic payments to be made for a person's life is based on that person's life expectancy. See §§ 1.72-5 and 1.72-9 of this chapter for rules used in computing the expected return on annuities. For purposes of determining the amount subject to withholding, the first periodic payment must be reduced by the amount of the wager.
(2)Wager placed in a State-conducted lottery. The term 'wager placed in a State-conducted lottery' means a wager placed in a lottery conducted by an agency of a State acting under authority of State law provided that the wager is placed with the State agency conducting such lottery or with its authorized employees or agents. This term includes wagers placed in State-conducted lotteries in which the amount of winnings is determined by a parimutuel system.
(3)Other wagering transaction. The term 'other wagering transaction' means any wagering transaction other than one in a lottery, sweepstakes, or wagering pool. This term includes a wagering transaction in a parimutuel pool with respect to horse races, dog races, or jai alai.
(4)Certain payments to nonresident aliens or foreign corporations. A payment of winnings that is subject to withholding tax under section 1441(a) (relating to withholding on nonresident aliens) or 1442(a) (relating to withholding on foreign corporations) is not subject to the tax imposed by section 3402(q) and this section when the payee is a foreign person, as determined under the rules of section 1441(a) and the regulations thereunder. A payment is treated as being subject to withholding tax under section 1441(a) or 1442(a) notwithstanding that the rate of such tax is reduced (even to zero) as may be provided by an applicable treaty with another country. However, a reduced or zero rate of withholding of tax must not be applied by the payer in lieu of the rate imposed by sections 1441 and 1442 unless the person receiving the winnings has provided to the payer the documentation required by § 1.1441-6 of this chapter to establish entitlement to treaty benefits.
(5)Gambling winnings treated as payments by employer to employee.
(i) Except as provided in subdivision (ii), for purposes of sections 3403 and 3404 and the regulations thereunder and for purposes of so much of subtitle F (except section 7205) and the regulations thereunder as relate to chapter 24, payments to any person of winnings subject to withholding under this section shall be treated as if they are wages paid by an employer to an employee.
(ii) Solely for purposes of applying the deposit rules under 6302(c) and the return requirement of section 6011, the withholding from winnings shall be deemed to have been made no earlier than at the time the winner's identity is known to the payer. Thus, for example, winnings from a State-conducted lottery are subject to withholding when actually or constructively paid, whichever is earlier; however, the time for depositing the withheld taxes and filing a return with respect thereto shall be determined by reference to the date on which the winner's identity is known to the State, if such date is later than the date on which the winnings are actively or constructively paid. If a payer's obligation to pay winnings terminates other than by payment, all liabilities and requirements resulting from the requirement that the payer deduct and withhold with respect to such winnings shall also terminate.
(d)Statement furnished by payee - 
(1)In general. Each person who is making a payment subject to withholding under this section must obtain from the payee a statement described in paragraph (d)(2) of this section.
(2)Contents of statement. Each person who is to receive a payment of winnings subject to withholding under this section must furnish the payer a statement on Form W-2G or 5754 (whichever is applicable) made under the penalties of perjury containing - 
(i) The name, address, and taxpayer identification number of the winner accompanied by a declaration that no other person is entitled to any portion of such payment, or
(ii) The name, address, and taxpayer identification number of the payee and of every person entitled to any portion of the payment.
(3)Multiple payments. If more than one payment of winnings subject to withholding is to be made with respect to a single wager, for example in the case of an annuity, the payee is required to furnish the payer a statement with respect to the first payment only, provided that the other payments are taken into account in a return required by paragraph (e) of this section.
(4)Reliance on statement for identical wagers. If the payee furnishes the statement which may be required pursuant to § 1.6011-3 of this chapter (regarding the requirement of a statement from payees of certain gambling winnings), indicating that the payee (and any other persons entitled to a portion of the winnings) is entitled to winnings from identical wagers, as defined in paragraph (c)(1)(iii)(A) of this section, and indicating the amount of the winnings, if any, then the payer may rely upon the statement in determining the total amount of proceeds from the wager under paragraph (c)(1) of this section.
(e)Return of payer - 
(1)In general. Every person making payment of winnings for which a statement is required under paragraph (d) of this section must file a return on Form W-2G at the Internal Revenue Service location designated in the instructions to the form on or before February 28 (March 31 if filed electronically) of the calendar year following the calendar year in which the payment of winnings is made. The return required by this paragraph (e) need not include the statement by the payee required by paragraph (d) of this section and, therefore, need not be signed by the payee, provided the statement is retained by the payer as long as its contents may become material in the administration of any internal revenue law. In addition, the return required by this paragraph (e) need not contain the information required by paragraph (e)(1)(v) of this section provided the information is obtained with respect to the payee and retained by the payer as long as its contents may become material in the administration of any internal revenue law. For payments to more than one winner, a separate Form W-2G, which in no event need be signed by the winner, must be filed with respect to each such winner. Each Form W-2G must contain the following:
(i) The name, address, and taxpayer identification number of the payer;
New York State Tax Gambling Winnings Losses(ii) The name, address, and taxpayer identification number of the winner;
(iii) The date, amount of the payment, and amount withheld;
(iv) The type of wagering transaction;
(v) Except with respect to winnings from a wager placed in a State-conducted lottery, a general description of the two types of identification (as described in paragraph (e)(2) of this section), one of which must have the payee's photograph on it (except in the case of tribal member identification cards in certain circumstances as described in paragraph (e)(3) of this section), that the payer relied on to verify the payee's name, address, and taxpayer identification number;
(vi) The amount of winnings from identical wagers; and
(vii) Any other information required by the form, instructions, or other applicable guidance published in the Internal Revenue Bulletin.
(2)Identification. The following items are treated as identification for purposes of paragraph (e)(1)(v) of this section - 
(i) Government-issued identification (for example, a driver's license, passport, social security card, military identification card, tribal member identification card issued by a federally-recognized Indian tribe, or voter registration card) in the name of the payee; and
(ii) A Form W-9, 'Request for Taxpayer Identification Number and Certification,' signed by the payee that includes the payee's name, address, taxpayer identification number, and other information required by the form. A Form W-9 is not acceptable for this purpose if the payee has modified the form (other than pursuant to instructions to the form) or if the payee has deleted the jurat or other similar provisions by which the payee certifies or affirms the correctness of the statements contained on the form.
(3)Special rule for tribal member identification cards. A tribal member identification card need not contain the payee's photograph to meet the identification requirement described in paragraph (e)(1)(v) of this section if - 
(i) The payee is a member of a federally-recognized Indian tribe;
(ii) The payee presents the payer with a tribal member identification card issued by a federally-recognized Indian tribe stating that the payee is a member of such tribe; and
(iii) The payer is a gaming establishment (as described in § 1.6041-10(b)(2)(iv) of this chapter) owned or licensed (in accordance with 25 U.S.C. 2710) by the tribal government that issued the tribal member identification card referred to in paragraph (e)(3)(ii) of this section.
(4)Transmittal form.Persons making payments of winnings subject to withholding must use Form 1096 to transmit Forms W-2G to the Internal Revenue Service.
(5)Furnishing a statement to the payee. Every payer required to make a return under paragraph (e)(1) of this section must also make and furnish to each payee, with respect to each payment of winnings subject to withholding, a written statement that contains the information that is required to be included on the return under paragraph (e)(1) of this section. The payer must furnish the statement to the payee on or before January 31st of the year following the calendar year in which payment of the winnings subject to withholding is made. The statement will be considered furnished to the payee if it is provided to the payee at the time of payment or if it is mailed to the payee on or before January 31st of the year following the calendar year in which payment was made.
Texas holdem rivers casino. (f)Examples. The provisions of this section may be illustrated by the following examples:
A purchases a lottery ticket for $1 in the State W lottery from an authorized agent of State W. On February 1, 1977, the drawing is held and A wins $5,001. Since the proceeds of the wager ($5,001 - $1) are not greater than $5,000, State W is not required to withhold or deduct any amount from A's winnings.
Assume the same facts as in example 1 except that A purchases two $1 tickets and that A wins $5,002 when one of the tickets is drawn. State W must deduct and withhold tax at a rate of 20% from $5,001 ($5,002 less the $1 wager), or $1,000.20.
C purchases a lottery ticket for $1. On June 1, 1979, the lottery drawing is held and C wins the grand prize of $50,000, payable $500 monthly. The payer must deduct and withhold tax at a rate of 20% from each payment of winnings. Therefore, $99.80 must be withheld from the first monthly payment to B ($500−$1) × 20% = $99.80) and $100 ($500 × 20%) must be withheld from each monthly payment thereafter.
Assume the same facts as in example 3, except that C wins an automobile rather than the grand prize. The fair market value of the automobile on the date on which it is made available to C is $10,000. The payer must deduct and withhold a tax of $2,000 (($10,001−$1) × 20%). This may be accomplished, for example, if C pays $2,000 to the payer. Alternatively, if the payer, as part of the prize, pays all taxes required to be duducted and withheld, the payer must deduct and withhold tax not only on the fair market value of the automobile less the wager, but also on the taxes it pays that are required to be deducted and withheld. This results in a pyramiding of taxes requiring the use of an algebraic formula. Under this formula, the payer must deduct and withhold a tax of 25 percent of the fair market value of the automobile less the wager ($2,500) and, in addition, the payer must indicate on Form W-2G the amount of such winnings as $12,501 ($10,001 + 25%($10,001−$1)).
New York State Tax Gambling Winnings WinningD purchases a ticket for $1 in the State Y lottery from an authorized agent of State Y On January 1, 1976, a drawing is held and D wins $100 a month for the rest of D's life. It is actuarially determined that, on January 3, 1977, D's life expectancy is 5 years. Based on that determination, the proceeds from the wager paid to D on or after January 3, 1977, will exceed $5,000. Therefore, State Y must deduct and withhold $20 from each monthly payment made on or after January 3, 1977. (None of such payments is reduced by the amount of the wager because the amount of the wager was offset by the first payment of winnings which was made before January 3, 1977)).
Assume the same facts as in example 5 except that State Y purchases in its own name, as owner, an annuity of $100 a month for D's life from E Corporation, in order to fund its own obligation to make the payments. Although State Y remains liable for the withholding of tax, E Corporation as paying agent for State Y, making payments directly to D, should deduct and withhold from each monthly payment in the manner described in example 5.
E purchases a sweepstakes ticket for $1 in a sweepstakes conducted by W. E purchases the ticket on behalf of himself and on behalf of F and G, who have contributed equal amounts toward the purchase of the ticket and who have agreed to share equally in any prizes won. The ticket which E purchases wins $1,002. Since the proceeds of the wager ($1,002 - $1) are greater than $1,000 W is required to withhold and deduct 20 percent of such proceeds.
On February 1, 1977, a drawing is held in the State X lottery in which a winning ticket is selected. The person holding the winning ticket is entitled to proceeds of $100,000 payable either as a lump sum upon demand or $10,000 a year for 10 years. Under State law, the winning ticket must be presented to an authorized agent of State X before February 1, 1978. Until the ticket is presented, State X does not know the identity of the winner. On December 1, 1977, H, the winner, presents the winning ticket to an authorized agent of the State X lottery. The winnings are constructively paid to H on February 1, 1977. Since H, has the option of receiving the entire proceeds upon demand, State X is required to deduct and withhold $20,000 ($100,000 × 20%) from the proceeds of H's winnings on February 1, 1977; but for purposes of determining the time at which the deposit and inclusion on Form 941 of these taxes is to be made, the withholding shall be deemed to have beem made on December 1, 1977.
J purchases a subscription to N magazine, at the regular subscription price. All new subscribers are automatically eligible for a special drawing. The drawing is held and J wins $50,000. Since J has not paid any more than the regular subscription price, J has not placed a wager or entered a wagering transaction. Therefore, N is not required to deduct and withhold J's winnings.
(i) B places a $15 bet at the cashier window at the racetrack for horse A to win the fifth race at the racetrack that day. After placing the first bet, B gains confidence in horse A's prospects to win and places an additional $40 bet at the cashier window at the racetrack for horse A to win the fifth race, receiving a second ticket for this second bet. Horse A wins the fifth race, and B wins a total of $5,500 (100 to 1 odds) on those bets. The $15 bet and the $40 bet are identical wagers under paragraph (c)(1)(iii)(A) of this section because winning on both bets depended on the occurrence of the same event and the bets are placed in the same parimutuel pool with the same payer. This is true regardless of the fact that the amount of the wager differs in each case.
(ii) B cashes the tickets at different cashier windows. Pursuant to paragraph (d) of this section and § 1.6011-3, B completes a Form W-2G indicating that the amount of winnings is from identical wagers and provides the form to each cashier. The payments by each cashier of $1,500 and $4,000 are less than the $5,000 threshold for withholding, but under paragraph (c)(1)(iii)(A) of this section, identical wagers are treated as paid with respect to a single wager for purposes of determining the proceeds from a wager. The payment is not subject to withholding or reporting because although the proceeds from the wager are $5,445 ($1,500 + $4,000 − $55), the proceeds from the wager are not at least 300 times as great as the amount wagered ($55 × 300 = $16,500).
B makes two $1,000 bets in a single 'show' pool for the same jai alai game, one bet on Player X to show and one bet on Player Y to show. A show bet is a winning bet if the player comes in first, second, or third in a single game. The bets are placed at the same time at the same cashier window, and B receives a single ticket showing both bets. Player X places second in the game, and Player Y does not place first, second, or third in the game. B wins $8,000 from his bet on Player X. Because winning on both bets does not depend on the occurrence of the same event, the bets are not identical bets under paragraph (c)(1)(iii)(A) of this section. However, pursuant to the rule in paragraph (c)(1)(ii) of this section, the amount of the wager is the aggregate amount of both wagers ($2,000) because the bets were placed in a single parimutuel pool and reflected on a single ticket. The payment is not subject to withholding or reporting because although the proceeds from the wager are $6,000 ($8,000 − $2,000), the proceeds from the wager are not at least 300 times as great as the amount wagered ($2,000 × 300 = $600,000).
B bets a total of $120 on a three-dog exacta box bet ($20 for each one of the six combinations played) at the dog racetrack and receives a single ticket reflecting the bet from the cashier. B wins $5,040 from one of the selected combinations. Pursuant to the rule in paragraph (c)(1)(ii) of this section, the amount of the wager is $120, not $20 for the single winning combination of the six combinations played. The payment is not subject to withholding under section 3402(q) because the proceeds from the wager are $4,920 ($5,040 − $120), which is below the section 3402(q) withholding threshold.
B makes two $12 Pick 6 bets at the horse racetrack at two different cashier windows and receives two different tickets each representing a single $12 Pick 6 bet. In his two Pick 6 bets, B selects the same horses to win races 1-5 but selects different horses to win race 6. All Pick 6 bets on those races at that racetrack are part of a single parimutuel pool from which Pick 6 winning bets are paid. B wins $5,020 from one of his Pick 6 bets. Pursuant to the rule in paragraph (c)(1)(ii) of this section, the bets are not aggregated for purposes of determining the amount of the wager because the bets are reflected on separate tickets. Assuming that the applicable rate is 25%, the racetrack must deduct and withhold $1,252 (($5,020 − $12) × 25%) because the amount of the proceeds of $5,008 ($5,020 − $12) is greater than $5,000 and is at least 300 times as great as the amount wagered ($12 × 300 = $3,600). The racetrack also must report B's winnings on Form W-2G pursuant to paragraph (e) of this section and furnish a copy of the Form W-2G to B.
C makes two $50 bets in two different parimutuel pools for the same jai alai game. One bet is an 'exacta' in which C bets on player M to win and player N to 'place.' The other bet is a 'trifecta' in which C bets on player M to win, player N to 'place,' and player O to 'show.' C wins both bets and is paid $2,000 with respect to the bet in the 'exacta' pool and $3,100 with respect to the bet in the 'trifecta' pool. Under paragraph (c)(1)(iii)(A) of this section, the bets are not identical bets. Under paragraph (c)(1)(ii) of this section, the bets are not aggregated for purposes of determining the amount of the wager for either payment because they are not wagers in the same parimutuel pool. No section 3402(q) withholding is required on either payment because neither payment separately exceeds the $5,000 withholding threshold.
C makes two $100 bets for the same dog to win a particular race. C places one bet at the racetrack and one bet at an off-track betting establishment, but the two pools constitute a single pool. C receives separate tickets for each bet. C wins both bets and is paid $4,000 from the racetrack and $4,000 from the off-track betting establishment. Under paragraph (c)(1)(ii) of this section, the bets are not aggregated for purposes of determining the amount of the wager because the wager placed at the racetrack and the wager placed at the off-track betting establishment are reflected on separate tickets, despite being placed in the same parimutuel pool. No section 3402(q) withholding is required because neither payment separately exceeds the $5,000 withholding threshold.
C places a $200 Pick 6 bet for a series of races at the racetrack on a particular day and receives a single ticket for the bet. No wager correctly picks all six races that day, so that portion of the pool carries over to the following day. On the following day, C places an additional $200 Pick 6 bet for that day's series of races and receives a new ticket for that bet. C wins $100,000 on the second day. Pursuant to the rule in paragraph (c)(1)(ii) of this section, the bets are on two separate tickets, so C's two Pick 6 bets are not aggregated for purposes of determining the amount of the wager. Assuming that the applicable rate is 25%, the racetrack must deduct and withhold $24,950 (($100,000 − $200) × 25%) because the amount of the proceeds of $99,800 ($100,000 − $200) is greater than $5,000, and is at least 300 times as great as the amount wagered ($200 × 300 = $60,000). The racetrack also must report C's winnings on Form W-2G pursuant to paragraph (e) of this section and furnish a copy of the Form W-2G to C.
(g)Applicability date. The rules in this section apply to payments made with respect to a winning event that occurs after November 13, 2017. For rules that apply to payments made with respect to a winning event on or before that date, see § 31.3402(q)-1 as contained in 26 CFR part 31, revised April 1, 2017.
Does New York State Tax Gambling Winnings(Secs. 6011 and 7805 of the Internal Revenue Code of 1954 (68A Stat. 732, 917; 26 U.S.C. 6011, 7805)
[T.D. 7787, 46 FR 46908, Sept. 23, 1981, as amended by T.D. 7919, 48 FR 46298, Oct. 12, 1983; 48 FR 55728, Dec. 15, 1983; T.D. 7943, 49 FR 5345, Feb. 13, 1984; 49 FR 8437, Mar. 7, 1984; T.D. 8895, 65 FR 50408, Aug. 18, 2000; T.D. 9824, 82 FR 44926, Sept. 27, 2017]
Gambling and the Law®: By Professor I Nelson Rose
The Internal Revenue Code is unkind to winners -- and it doesn't much like losers, either. The federal government taxes gambling winnings at the highest rates allowed. So do the manystates and even cities that impose income taxes on their residents. If you make enough money, in a high-tax state like California or New York, the top tax bracket is about 50 percent. Out ofevery additional dollar you take in, through work or play, governments take 50 cents.
Of course, the tax-collector first has to find out that you have won. Congress and the Internal Revenue Service know gambling is an all-cash business and few winners indeed wouldvoluntarily report their good luck. So, statutes and regulations turn the gambling businesses, casinos, state lotteries, race tracks and even bingo halls, into agents for the IRS.
New York State Tax Gambling Winnings 2019Big winners are reported to the IRS on a special Form W-2G. If winnings are to be split, as with a lottery pool, winners are reported on a Form 5754.
Pooling money to buy lottery tickets is common among employees and friends. But whether there are two or 200 in the pool, there is going to be only one winning ticket, and somebody has toturn it in. If you are that someone, make sure you fill out a Form 5754. If your share of a $5 million prize is $1 million, you do not want to be stuck with paying income tax on the entire $5million.
New York State Tax On Gambling WinningsGambling has become such big business that the IRS receives nearly four million Forms W-2G and 5754 each year. This tells the tax-collectors that nearly four million big winners are outthere, waiting to be taxed.
But the IRS does not always wait. The government wants to make sure it gets paid. What good does a W-2G do if the winner is a foreigner who is going to be in his own foreign country whenApril 15th rolls around?
So, the IRS not only wants reports filed, but often requires that a part of the winnings be withheld. As anyone who has a salary knows, withholding also allows the government to usetaxpayers' money for many months, without having to pay interest.
The withholding rate for nonresident aliens is 30%. Not coincidentally, the tax rate for nonresident aliens is also 30%. So, if a citizen of a foreign country wins $1 million cash at aslot machine in Las Vegas, he will find he is only paid $700,000. The remaining $300,000 is sent to the IRS. The foreign citizen is unlikely to ever file an income tax return, but the IRS getspaid in full anyway.
Citizens of foreign countries are also, of course, usually taxed by their own governments. So some countries have treaties with the U.S., which protects those foreigners from having topay the 30% withholding to the IRS.
U.S. citizens and resident aliens have it both better and worse than nonresident aliens. The withholding rate for gamblers living in American is only 28% (it was 20%, up to1992). Having the IRS take $28,000 out of a jackpot of $100,000 is painful. But, it can hurt even more when tax forms are filled out. There is no 30% maximum tax for people living in the U.S.,and really big winners often end up paying a lot more than 28% or 30%.
The one good news is Nevada casinos were also able to convince the IRS that they could not keep track of players at table games. They said that when a player cashes out for $7,000,they do not know whether he started with $25 or $25,000. So it is actually written into the law that there is no withholding or even reporting of big winnings to the IRS for blackjack,baccarat, craps, roulette or the big-6 wheel.
There is another general IRS rule that says anyone paying anyone else $600 in one year is supposed to file a report. The IRS has been going after casinos and cardrooms that runtournaments, forcing them to file tax reporting forms on grand prize winners. Here the IRS has the very good argument that the operator knows exactly how much a player has paid to enter thetournament and how much the finalists are given.
Is there anything a winning player can do to lower the bite of the income tax? And what about those who gamble and lose? Which is everybody, occasionally. The law does allow players totake gambling losses off their taxes, but only up to the amounts of their winnings.
Of course, if you win, say $135,000, you can take off all gambling losses, up to that amount. If you gambled away, say $65,000, you would only have to pay taxes on the remaining, let'ssee: $135,000 minus $65,000 equals $70,000. The tax on $70,000 is a lot less than the tax on $135,000.
Of course, you have the small problem of proving that you actually lost $65,000. Large winnings may be required to be reported to the IRS; large losses are not.
One former IRS Revenue Officer, who quit government to open his own small tax preparation firm, thought he found the answer. One of his clients won a share in a state lottery: $2.7million, paid out over 20 years in installments of about $135,000, before taxes. The winnings were reported, but the tax return claimed gambling losses of $65,000. The IRS decided that $65,000was a lot to lose, and it sent an agent to conduct an audit.
The tax preparer found a man with an extremely large collection of losing lottery tickets and made a deal: he would borrow 200,000 losing tickets for a month for $500. The losing ticketswere bound in stacks of 100 and shown to the IRS auditor: 45,000 instant scratch tickets, 5,000 other Massachusetts lottery tickets, and 16,000 losing tickets from racetracks throughout NewEngland. So many losing tickets, that it would have been physically impossible for one man to have made these bets. The New York Times called it, 'one of the more visibly inept efforts at taxfraud.' They pleaded guilty eight days after being indicted.
By the way, the man who rented the tickets was not charged. It's not a crime to collect losing lottery tickets, only to use them to try and cheat the IRS.
© Copyright 2009, all rights reserved worldwide. Gambling and the Law® is a registered trademark of Professor I Nelson Rose. Professor I Nelson Rose is recognized as one of the world'sleading experts on gambling law and is a consultant and expert witness for players, governments and industry. His latest books, INTERNET GAMING LAW (2nd edition just published), BLACKJACKAND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website, www.GAMBLINGANDTHELAW.com.