Players dream of hitting a big jackpot when they play the slots. When that day comes for you, you'll have questions about the taxes you must pay on the winnings.

• Federal Tax Treatment Of Gambling Winnings On Slot Machines Real Money
• Federal Tax Treatment Of Gambling Winnings On Slot Machines Jackpot

Hand Pay Jackpots

Do I Have to Report All Winnings? All gambling winnings received from slot machines are subject to. Under the new law, those who itemize deductions will continue to be able to deduct gambling losses up to the amount of their total winnings. For example, a slot player who wins $25,000 in jackpots may deduct up to that amount in verifiable gaming losses when they fill out an itemized tax form. How Gambling Winnings Are Taxed. The federal income tax process with regard to gambling remains the same across the US. Unlike income tax, US gambling taxes are not progressive. No matter how small or how large you win, you are required to pay 25% to the IRS. However, things can be different at the state level. There are two IRS forms you must complete to report gambling winnings: the U.S. Individual Tax Return 1040 and IRS Form W-G2 Certain Gambling Winnings. All profits from gambling are subject to a 24% gambling tax. However, some sources of gambling winnings are automatically subject to withholding tax. For slot machines, the Service further requires that a taxpayer record all winnings by date, time and slot machine number (see Exhibit 1). But because few taxpayers (especially recreational gamblers) maintain convincing records of their gambling activities, they can be left paying tax on their gross W-2G winnings, without any offset for.

Slot machine timing markers. When you hit the winning combination of symbols for a large jackpot, your slot machine locks up. Depending on the machine, the lights on top of the machine may come on and start flashing, music may play or bells ring. A slot attendant arrives promptly to see what you have won.

On jackpots smaller than $5,000, an attendant verifies that you hit the jackpot and then assists you in claiming your money at the cashier's cage. In the case of a large or progressive jackpot, the casino may have technicians come and check the machine to certify that it was functioning properly when the jackpot hit. If you hit one of the wide-area progressive machines such as MegaBucks, the slot company that operates the game comes out and verifies that machine before giving you a check.

When you hit a jackpot, you have the option of taking your winnings in cash or check. Usually, large amounts are paid by check. In the case of the MegaBucks or similar multi-million dollar jackpots, you receive a check for the partial amount, and then you have 90 days to decide if you want to be paid a lump sum or an annual annuity on the balance. If you select the lump sum option, you receive only a percentage of your actual winnings. For example, the full winnings of one multi-million slot jackpot is paid in 25 annual installments, or you can take a lump sum of 60 percent of the winnings.

IRS Withholding

All casino winnings are subject to federal taxes. However, the IRS only requires the casinos to report wins over $1,200 on slots and ​video poker machines or other games such as keno, lottery or horse racing. When you have a win equal to or greater than $1200, you are issued a W-2G form. This form lists your name, address and Social Security number. The casinos are not required to take out withholding tax on jackpots under $5,000 as long you supply your Social Security number. If you don’t provide your Social Security number, the casinos withhold 28 percent on small jackpots.

You can request a specific amount of withholding tax to be taken out of any jackpot you win. Some players like to do this to avoid a big tax payment in April when they file their income tax returns. The additional withholding may not be necessary if you keep a log book. The law allows you to deduct gambling losses up to the amount of your winnings. You can only do this if you have documentation of your losses. Keeping a diary or log book is the way to do this.

Proper Identification

Casinos can refuse to pay you until you produce proper identification—a photo ID such as a driver’s license, military ID or passport.

If you don’t produce an ID, you are photographed and the casino holds your winnings until you come back with proper ID. For this reason, you should always carry a valid form of identification with you when you visit the casino.

When the casino checks your identification, it also checks your age to make sure you are legally old enough to play. The minimum age for gambling varies from state to state, but under-age gamblers are not be paid if they hit a jackpot. This is the law in all jurisdictions, and it has been upheld in court.

Plan Ahead

Before you start playing your favorite slot machine you should have a plan for the day you hit a jackpot. Players become excited when they hit the big one, and this may affect the decisions you make about your winnings. It is helpful if you know ahead of time how much withholding you want taken out or whether you want a check for all or some of the amount.

The IRS has proposed, via Notice 2015-21, an optional “safe harbor” method of determining slot machine sessions for purposes of tracking gambling wins and losses. The notice contains a proposed revenue procedure that would be effective for tax years ending on or after its date of publication. So it’s important to note the IRS is neither endorsing this method for returns currently being prepared, nor giving any assurance that this method will be respected for 2015.

Real small slot machine for sale. Keep in mind with weather and freight nothing is ever guaranteed.

The proposed procedure would allow taxpayers who are using electronically tracked slot machine play at a casino (such as via a “player’s card”) to treat each day’s electronically tracked play on a particular type of game at a single casino as a single session, with the casino presumably providing a day by day breakdown for the customer to support this treatment.

The day by day treatment is literal—if a player is playing a machine at midnight, local time for the casino, a new session will start at that time. Similarly, if a player plays in the morning, leaves the casino and then returns that evening and plays the same type of game in the casino, that would still constitute a single session through midnight.

However, if the player goes to a different casino, the play at that casino would constitute a separate session. As well, if the player were to engage in wagers on the same type of machine in the first casino but do so in a way that is not electronically tracked, those plays could not be combined with the electronically tracked play at the casino that day.

Federal Tax Treatment Of Gambling Winnings On Slot Machines Real Money

If a taxpayer elects to use this method for any day at a particular casino during the year, the taxpayer must use this method for all electronically tracked slot machine play at the same establishment during the year in question.

The proposed procedure gives seven examples of applying these proposed rules:

Example 1. A taxpayer engages in electronically tracked slot machine play at X, a casino, by using a player’s card. On January 1, the taxpayer plays slot machines at X, for the first time that day, from 3:00 p.m. to 5:00 p.m. At 6:00 p.m., the taxpayer leaves X for dinner. Later that day, the taxpayer returns to X and plays slot machines from 10:00 p.m. to 11:59 p.m. The play at X from 3:00 p.m. to 5:00 p.m. and from 10:00 p.m. to 11:59 p.m. is a single session of play on January 1.

Example 2. Assume the same facts as in Example 1, except that the taxpayer plays from 10 p.m. to 2 a.m. The play from 3 p.m. to 5 p.m. and the play from 10 p.m. through 11:59 p.m. constitute a single session of play. The play from 12:00 midnight to 2 a.m. is another session of play on January 2nd.

Example 3. Assume the same facts as in Example 1, except that the taxpayer goes to another casino, Y, to engage in electronically tracked slot machine play from 7:00 p.m. to 8:00 p.m. The taxpayer has 2 separate sessions of play on January 1: (1) one session of play from 3:00 p.m. to 5:00 p.m. and 10:00 p.m. to 11:59 p.m. at X, and (2) another session of play from 7:00 p.m. to 8:00 p.m. at Y.

Example 4. On January 1, at 3:00 p.m., the taxpayer starts electronically tracked slot machine play at X for the first time that day. At 5:00 p.m., the taxpayer finishes slot machine play for that day and has payouts in excess of wagers of $300. For the single session of play on January 1, the taxpayer has gambling winnings of $300.

Example 5. Assume the same facts as in Example 4, except that at 5:00 p.m., the taxpayer leaves the premises of X to eat dinner at a nearby restaurant. At 8:00 p.m., the taxpayer returns to the premises of X for more slot machine play. The taxpayer places wagers until 11:00 p.m. During the period from 8:00 p.m. until 11:00 p.m., the taxpayer’s wagers placed on electronically tracked slot machine play exceeded the total dollar amount of payouts from electronically tracked slot machine play earned by the taxpayer by $75. The taxpayer’s wagering gain for the single session of play at X is $225, the extent to which his payouts from electronically tracked slot machine play during that session exceeds the dollar amount of wagers from electronically tracked slot machine play.

Example 6. Assume the same facts as in Example 4, except the taxpayer goes to another area of X and from 5:15 p.m. to 7:00 p.m., engages in additional slot machine play that is not electronically tracked. This revenue procedure applies only to electronically tracked slot machine play (the session from 3:00 p.m. to 5:00 p.m.). Therefore, the taxpayer cannot include the slot machine play from 5:15 p.m. to 7:00 p.m. in the session of play for January 1.

Example 7. Assume the same facts as in Example 4, except that, three months later on April 1, the taxpayer returns to X for slot machine play, and begins electronically tracked slot machine play at 6:00 p.m. For the slot machine play on April 1, section 6.03 of this revenue procedure requires the taxpayer to use a session of play that runs from 6:00 p.m. up through 11:59 p.m. (or earlier in that calendar day, if his play ends earlier).

Taxpayers using this procedure would need to write “Revenue Procedure 2015-X” on line 21 of Form 1040 to indicate they are using this method, though that notation is proposed to only be first effective on 2016 returns (potentially due to issues of getting efile coding in place to recognize that election).

The IRS is looking for specific comments in the following areas with regard to this proposal:

• Alternative definitions for the term “slot machine;”
• Whether an interruption in play, such as leaving the gaming area for over 15 minutes, should affect the determination of what constitutes a single session of play;
• Whether a session of play should be based on a period other than a calendar day (making adjustments when necessary to accommodate the end of a taxpayer’s year on December 31st);
• Whether the definition of a single session of play should be determined by other factors, such as the duration of a trip or by each slot machine played (comments should include an explanation of the benefits and drawbacks of the proposed method);
• Whether the safe harbor should include payouts in the form of merchandise and bonus rewards;
• Whether the topic is appropriate for the Industry Issue Resolution (IIR) program described in Rev. Proc. 2003-36, 2003-1 C.B. 859;
• Whether a safe harbor method to determine a wagering gain or loss should be developed for other forms of gambling, including, but not limited to, keno, table games, and pari-mutuel wagers (comments should include the form of gambling, a description of the proposed safe harbor method, and an explanation of the benefits and drawbacks of the proposed method); and
• Whether any aspects of the optional safe harbor pose problems of administrability for stakeholders (including whether the issues and possible modifications on which comments are requested would pose problems for sound tax administration).

Federal Tax Treatment Of Gambling Winnings On Slot Machines Jackpot

Note that taxpayers would not have to use this method to determine slot machine sessions, but rather it provides a safe harbor treatment that it appears the IRS hopes will be compatible with the casino’s electronic reporting systems for players. Advisers who have clients that like to play the slots should keep an eye on developments regarding this procedure, as it seems likely the IRS plans to finalize the revenue procedure before the end of 2015.