IRS Proposes Altering Slot Machine Reporting Requirements

Author: Mark Pilarski

Dear Mark: Currently, the casino must issue a W2-G and report your winnings when you hit a slot payout of $1200 or more. My question is, does that hold true for all denominations of slot machines? Bill W.

Yes, and I am afraid it may get even worse. The IRS is considering a plan to get a bigger share of your jackpots: by taxing the smaller ones as well.

The way it works now, for the lucky player winning a $1,200 jackpot, the machine immediately shuts down and you must wait until a casino employee arrives with the W2-G.

Earlier this year the IRS did an expansive rewrite of the gambling tax law. At that time the IRS put forward the idea of lowering the mandatory reporting amount for slot machines to wins of $600. Uncle Sam says that gamblers, by law, must pay taxes on every dollar they win at a casino, a bingo parlor, a racetrack, or even an informal football bet with Uncle Louie, so the IRS thinks they might as well get more by lowering the jackpot threshold.

So, a $600 jackpot will not only trigger a tax form, but when you play another hour or two, your taxable winnings will probably be gone by losses you incur, and your tax liability will still be outstanding. A jackpot large enough to report, might not even offset your losses from you played on that same machine an hour before you finally won.

Although you can keep track of your losses with meticulous records to offset any winnings, few, if any, casual gamblers do.

I do not support, nor personally expect, the $600 reporting threshold to make it into any final ruling. In reality, I believe the W2-G limit should be raised to at least $2,500. I will keep you updated on any change to this gambling tax law.

Dear Mark: Long time reader, first time writer. I will be in Las Vegas, for the first time, in October. I will be attending a 'World of Concrete' convention to be held at the Las Vegas Convention Center.

What I am wondering is, with tens of thousands of us non-gamblers showing up, if the casino can push a button and make the slots tighter, or, if they would replace the machines with ones that are already tighter? Also, could you share some of the expected returns from slot machines I will find on the Strip? M. B.

No, there is no magic switch that can be flipped from some secret location, nor is any computer chip or machine swapping going on to hornswoggle more dough out of unsuspecting conventioneers.

The only time casino management swaps out a machine is when they believe it is underperforming or they have decided to convert the machine to a newer or more popular model. Believe me, it is no simple bang-bang deal when they do swap one out.

There is a lengthy list of sequential steps the casino must take in most gaming jurisdictions in order to change the percentage return to a level favoring the casino more. And, in reality, it is not cost-effective for casinos to vary payouts on weekends, holidays, and yes, for concrete conventions, with thousands of machines on the floor. So, the unsuspecting tourists are safe, at least for now.

Average hold percentage for the Las Vegas Strip are approximately 11% for nickel machines, 6-7% for quarters, 4% for dollars, and 3.5% for five dollars and above.

Gambling Wisdom of the Week: “How the IRS views gambling is a murky, swampy, stinky cesspool, so wide that it's extremely difficult to maneuver around." – Jean Scott