You Won! Great. Now Pay Uncle Sam

Author: Mark Pilarski

Dear Mark: I was recently in Las Vegas playing roulette and came away with a large, $2,000 win at Bally’s. What surprised me is they didn't ask me for any information for the IRS. I have in the past won $1,300 in slots and was requested on the spot to supply the required information like SS number, driver’s license, etc. for a W2-G. Why are table games treated differently from slots when it comes to gambling? S. B.

The difference between table games and slots is that when you insert three slugs and hit it big, bells ring, lights flash and a hoard of freeloaders climb all over you looking for a handout—including Uncle Sam. On table games, sizable wagers of $1,300 are the norm for high rollers. Can you imagine the casino stopping a table game like blackjack every time a player wins a $1,500 hand to make the player fill out a W2-G? For this reason the IRS has Revenue Procedure 77-29, which is the guideline to gamblers for tax purposes on the question of both gambling winnings and losses.

Back in 1977 the IRS introduced the W2-G (statement of gambling winnings) to replace form 1099 for reporting gambling winnings as well as income tax withheld. According to the IRS, the payer must issue you a W2-G form if your winnings are $600 or at least 300 times the amount wagered. This would be representative of winnings from dog racing, horse racing and state lotteries.

Casino winnings are treated slightly different as a W2-G must be issued and filled out by the casino if a bingo or slot machine win exceeds $1,200, or net proceeds from a keno win are greater than $1,500. Note that I stated “net proceeds” from keno being larger than $1,500. The amount of winnings can be offset by the amount you wagered on your ticket for that one game. This is a benefit to keno players who mark extensive way-tickets that can cost them well over $100. Some players even play certain tickets that have payoffs of exactly $1,500, then back off the dollar they wagered, and avoid having to fill out a W2-G.

Oh, and one more thing. Now that you have won a jackpot and received a W2-G, don’t think there is any way of avoiding your tax bill. The IRS also receives a copy of the W2-G from the casino, and now their computers also know of your fortunate winnings.

Dear Mark: Is it true that a video poker machine internally knows which cards it initially deals and then gives you lousy cards so you won’t have a winning hand? M. S.

Without hesitation, Mark, I unequivocally state, slot machines in regulated gaming jurisdictions have random outcomes. You can be confident that laws are in place to assure you a square game, without deception.

Most states operate with regulations that require their gambling devices to have a random outcome. In order to satisfy this requirement, slot machines of all types use a random number generator software algorithm to determine the games’ outcome. This insures that all video poker machines are based completely on chance, just as if the cards were dealt from a perfectly shuffled deck. BUT, the operative phrase here is “regulated gaming jurisdictions.”

Some casinos operate in locations without any enforceable gaming regulations. Examples would be Indian reservations not subject to state regulations, internet casinos and cruise ships that sail in international waters.

Also note, Mark, that the technology does exist so slot machines won’t act randomly; instead, they can be pre-programmed to avoid giving you a royal flush. These machines are illegal in Nevada, New Jersey and all states that pattern their gaming regulations after these industry leaders. You might, nonetheless, stumble across them in ungoverned casinos.