If you run a gambling establishment, you have the opportunity to make a small percentage of your customers very happy. That happiness is tinged to some extent by their need to pay taxes on certain gambling winnings. This requires you, as the payer, to record and report key information to the IRS and the lucky winners. For this, you use Form W-2G, Certain Gambling Winnings.
Reportable Winnings
Form W-2G reports winning and withholding amounts for a variety of gambles:
- Horse racing and dog racing
- Jai alai
- Sweepstakes, wagering pools and lotteries
- Bingo, keno and slot machines
- Poker Tournaments
- Other wagering
The winnings must meet certain requirements to be reportable:
- Minimum payoffs: $1,200 from bingo or slots, $1,500 (reduced by the wager) from keno, and $5,000 (less the wager or buy-in) from poker
- Other winnings, reduced by the wager, are at least $600, 360 times the bet amount, or are subject to federal income tax withholding
- Tax-exempt organizations may have to file Form W-2G, even for charitable events
Withholding Rules
The normal withholding rate is 25 percent is the winnings, minus the wager, exceeds $5,000. However, bingo, keno and slot machine payoffs are exempt from normal withholding. The withholding applies to noncash payments as well, such as when you win a car or a trip to Disneyland, as long as the net value exceeds $5,000. If the payer shells out the withholding tax on the winner’s behalf, the rate climbs to 33 1/3 percent.
Backup withholding rules apply to winners that can’t provide a correct taxpayer identification number (TIN). The backup withholding rate is 28 percent and it applies to the full amount of the winnings (less the bet amount), not just the part that exceeds the reporting thresholds mentioned earlier.
The winnings of foreigners and non-resident aliens are reported on Form 1042, not on Form W-2G. Winnings and withholdings can be reported to state and local authorities as a convenience on Form W-2G.
Form W-2G
Form W-2G has many boxes and many rules, as you would expect given the broad range of gambling activities subject to withholding. Some of the rules are arcane. For example, if you place a $12 box bet on a trifecta, the rules apply as if you had placed six $2 bets. However, if you bought six $2 tickets on the same horse to win, you’d treat the bet as a single one for $12.
The information on Form W-2G includes:
- Identities of payer and winner, including the winner’s TIN
- Date and amount of winnings, including additional winnings from identical bets
- Type of wager
- Federal income tax withheld
- Race or game number
- State and local winnings
- Wager-specific information for type of gamble (animal racing, poker, etc.)
While you could manually complete and file a W-2G for each applicable winner, you can save a lot of time and effort by using software that loads the data to the forms, prints it and/or electronically transmits it to the IRS. Even easier is to hire a service bureau that does all the work for you.
