Q. Anonymous from Cyberspace writes: Friends of mine enjoy playing Video Poker. They also believe in following all tax laws. They report gambling winnings from W-2G's as well as gambling winnings not recorded on W-2G's. They play together, usually at machines next to each other. When one of them gets lucky enough to hit a royal flush, he usually gives a gift to the other one because it appears to be illegal to split the payoff since Form W-2G states ". . . I declare . . .that no other person is entitled to any part of these payments." It appears that if they played as PARTNERS, they would be breaking the law by splitting the money from a Royal Flush. Please do not use my name if this makes your excellent column. Thank you.
A. We thank YOU, for calling our column "excellent". That is one way to get your question answered. Your right about what you are attesting to when you sign an W-2G, which is that you are the sole recipient of the winnings. However, splitting winnings is NOT breaking the law. The IRS conveniently provides a form, (Form 5754), statement by Person(s) Receiving Gambling Winnings" which the winner and those that that are getting a split, provide the necessary information the payer needs to fill out multiple W-2G’s. You should have this form filled out and ready to present to the payer when they "show you the money". This form was developed in the 1970’s in an attempt to get the money made by what were know as "10%’ers" reported. "10%’ers" are people the make a deal with a winner of a horse race who is going to get enough money that a W-2G will be issued and (back then) 20% withheld. They'd offer to collect the money and receive the W-2G in their name for 10% of the winnings to save the winner from having to report the winnings. They, we assume, reported enough in losses to cover all the Form 5754’s for which they signed (and more than likely do not report the 10%.), thus calm a refund of all the 20%’s withheld. When it first came out, the Form 5754, was used in place of W-2G’s for spits, but it soon evolved into being a facilitator for the issuance of W-2G’s to group wagers. Hope this answers your question and we hope you keep records and deduct all the losses to which you and your buddies are entitled.
Q. I'm a Canadian living in Toronto and like to make occasional trips to OTB's in New York state. Recently, I cashed a $2 tri which paid $1200....but the IRS stepped in and said I would be taxed at 30% thus withholding $360 and I got $840. The rule being 30% for visitors when cashing at 300-1 or greater and over $1000. They didn't allow for the fact I was down $300 on the day and had the tickets. A local fan said that he thought the money was 'recoverable' for Canadians once they return to Canada....is this true? Can you give me any direction in how to proceed? Do I have any recourse? Thanks for you help in this frustrating matter.
A. To answer this we have to look at what is said in the tax treaty between Canada and the U.S. The treaty as amended by various ‘Protocols’ now in force contains language in Article 11 which entitles the residents of Canada when taxed (withholding of taxes by the payer) on gaming winnings within the U.S. to deduct loses from wagering also incurred with the U.S. as to the extent that such losses would be deductible if you a citizen of the U.S. which is to the extent of winnings. So you can file a non-resident tax return for the year, reporting your winnings and losses (not to exceed the winnings) and claim a refund. Be advised, to substantiate your wins and losses, you must keep a diary of your daily wins or losses and any relevant receipts.
Q. Could you please tell me when Casino's are required to withhold gambling winnings? For example: When you play Let it Ride or any jackpot card game and you win. Do they tax the regular winnings as well as the jackpot winnings? e.g. If I win $2,000 on my bet, and $10,000 on the Jackpot am I taxed for the Total $12,000, or just the $10,000 Jackpot winnings.
A. Be more than happy to tell you when Casinos are required to withhold on gambling winnings although I am going to make a few assumptions to make the answer simple, which are; you are a U.S. citizen and you did not win the money in a poker tournament. IRS Regulation 31.3402(q)-1 ‘Extension of withhold to certain gambling winnings", states the following, "Winnings subject to withholding means any payment from-- (1) A wager placed in a State-conducted lottery (defined in paragraph (c)(2) of this section) but only if the proceeds from the wager exceed $5,000; (2) A wager placed in a sweepstakes, wagering pool, or lottery other than a State-conducted lottery but only if the proceeds from the wager exceed $1,000; or (3) Any other wagering transaction (as defined in paragraph (c)(3) of this section) but only if the proceeds from the wager (i) exceed $1,000 and (ii) are at least 300 times as large as the amount of the wager." Certain games are exempt from withholding and even the reporting of winnings and they are, blackjack, baccarat, craps, roulette and of course, the big six wheel. So, the answer is not cut and dry, your situation must meet the criteria above. Do not confuse taxing with withholding, all gambling winnings are taxable. And yes, the total amount of winnings from one wager is considered one transaction.
Q. Send me the address and form no. to get legal with the feds. The stamp was 50. per year and 2% of your gross. please respond back a.s.a.p thank you.
A. The stamp has disappeared but the fee has not. Contact your local district office and they should be able to assist you. The fee in many cases is now $500. Good luck.