Are you one of the lucky ones? Among the thousands of poker players bit by the pop-culture bug and now causing casinos around the country to increase the number of active tables on their floors? Then, I’m sorry to inform you, an unwanted player just sat down next to you: the Internal Revenue Service. Starting next year, the IRS will require casinos and other sponsors of poker tournaments to report most winnings to the government.
The new requirement, which goes into effect March 4, 2008, was contained in guidance released September 4 by the Treasury Department and the IRS. The guidance is designed to clear up confusion about the tax-reporting rules that apply to poker tournaments.
In recent years, some casinos and players have been confused over whether poker tournament sponsors who hold the money for participants in a poker tournament are required to report the winnings to the IRS and withhold tax on the winnings.
For tournaments completed during 2007 and before March 4, 2008, casinos and other sponsors of poker tournaments will not be required to report the winnings to the IRS or withhold tax on the winnings.
That ends March 4. All tournament sponsors will be required to report winnings of more than $5,000, usually on an IRS Form W-2G. Tournament sponsors who comply with this reporting requirement will not need to withhold federal income tax at the end of a tournament. If any tournament sponsor does not report the tournament winnings, the IRS will enforce the reporting requirement and also require the sponsor to pay any tax that should have been withheld from the winner if the withholding requirement had been asserted. The withholding amount is normally 25 percent of any amount that should have been reported.
To ensure tournament sponsors can comply with this tax requirement, tournament winners will be required to provide a Social Security number to the tournament sponsor. If a winner fails to provide this, the tournament sponsor must withhold federal income tax at the rate of 28 percent.
Of course, taxing gambling winnings is nothing new. In fact, taxpayers are required to report their winnings every year, even if they do not receive a tax form when they collect those winnings.
In truth, not many people report their winnings, some because they don’t want to and others because they don’t know they need to report.
This news should reinforce the absurdity for taxpayers of a long-held myth about the IRS: that the tax-collecting agency only pursues and audits the filthy rich.
Average taxpayers, including middle-class folks just taking a vacation in Las Vegas, can become the target of IRS scrutiny. Consider that the next time you sit at the card table or file your taxes.
Michael Rozbruch is a Certified Tax Resolution Specialist, a member of the American Society of IRS Problem Solvers and a Maryland CPA. You can contact him at 866-477-7762 to obtain a free subscription to his newsletter titled The IRS Times & Inquirer.