Casinos Must Report Poker Tournament Winnings Over $5,000 to the IRS Starting in 2008
The tournament sponsors are not required to withhold federal income tax from the winnings, as long as they comply with the rules and as long as they get social security or taxpayer id numbers from the winners.
However, if the sponsors don't report tournament winnings to the IRS, then the IRS will "enforce the reporting requirement" and will also require the tournament sponsor to pay a tax on the winnings that weren't reported, at a rate of 25%. And if tournament winners don't give the tournament sponsors their social security numbers (or taxpayer id numbers, if they use those instead), then the tournament sponsors must withhold federal income tax at a rate of 28%.
The norm, though, if everyone complies, is that the sponsors will report the winnings, but not collect the tax, and the players will pay the tax at the time they normally pay their income taxes.
Tournament winners are already required to report all of their winnings to the IRS on their federal income tax returns. This new rule doesn't change that, though presumably it will make it easier to catch winners who don't comply.
The new rule was part of guidance released by the Treasury Department and the IRS on September 4, 2007. The IRS says that the guidance is "designed to clear up confusion about the tax reporting rules that apply to poker tournaments." Apparently, there has been some confusion about whether casinos and other poker tournament sponsors who hold money for players in poker tournaments are required to report the tournament winnings to the IRS and to withhold tax on the winnings.
According to the Las Vegas Sun, the IRS had originally been planning to require tournament sponsors to withhold 25% of poker tournament winnings over $5,000, but negotiations between the casino industry and the IRS led to that requirement being scrapped, in favor of the one described above. The casinos were pleased with the outcome. They had been afraid that if they were required to withhold tax money from tournament winnings, they would lose players to offshore internet sites where players would be able to dodge tax requirements.
Sources
Poker Tournament Winnings Must be Reported to the IRS, IRS Press Release, October 24, 2007
Poker tournament winners get time to pay Uncle Sam, by Liz Benston, Las Vegas Sun, October 4, 2007
Published by May Monten
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