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IRS may lower threshold for reporting gambling winnings

By Nathan Vinson, attorney
English, Lucas, Priest & Owsley, LLP

IRS taxes gambling

The IRS is considering changing the way it taxes gambling payouts.

Since 1977, the IRS has required those who won $1,200 or more from slot machines or $1,500 or more from Keno to report and pay taxes on those winnings. We wrote about this rule earlier this year as it pertains to horse racing, a subject near and dear to Kentucky hearts.

After nearly 40 years of this practice, the IRS is considering changing that limit to $600, and casino gaming operators aren’t pleased.

The IRS is proposing the changes in part because it’s become much easier to track a player’s winnings. Players use electronic cards (a.k.a. “players” cards) that track a player’s bets, losses, winnings, time spent at a table game or slot machine, and when a player sleeps (kidding on the last one…but seriously, they can track when, what, where, and how you dine or drink and how much you spend on such). Because those cards track winnings, the IRS has noted it would be easy to know when players are winning and how much they’re taking home, making the reporting simple and easy.

But that’s not correct, officials from the gambling industry testified in June at a hearing at IRS headquarters. The electronic cards aren’t necessarily tied to one person, casino owners said. They also objected to the time period that the IRS targeted for winnings. The IRS had said the winnings needed to be on one calendar day, but casino owners note that many gambling operations stay open well past midnight, and the calendar day restriction would make it difficult to track.

For instance, what about the gambler at MGM Grand in Las Vegas who starts on the slot machines at 10 p.m. and ends the night at the blackjack table at 1:30 a.m.?  Is the gambler allowed to net all the session wagers and losses against winnings, or does the gambler have to arbitrarily cut off tracking at midnight and start a “new” session?  If the gambler lost $300 up until midnight, but wins $600 at 12:01 a.m., is the $600 subject to withholding?

The burden of this change would be put on casinos. The electronic cards are designed for ease of use for the consumer, not for casinos and the IRS to track winnings. Casinos would be pitted against their customers, with the casinos having to report the winnings, and ending up in disputes with gamblers on how much to report to the IRS as winnings.  After all, the cards were originally designed as, and still serve as, loyalty programs to reward gamblers for their patronage.

The $600 threshold is troublesome, too, but it matches what the IRS has always required of other types of income. For those who are self-employed or who receive side income apart from their regular paychecks, the reporting threshold is $600. If the amount is $599.99 or less in a calendar year, there isn’t a need to report it.

But let’s think about how much $600 is in today’s money versus 1977. According to saving.org, $1,200 was $4,841.48 in 1977. It was a much more substantial amount of money – perhaps several months’ worth of house payments, or even enough to buy a car in those days. It was much more significant. Six hundred dollars today might make a car payment for a month or pay part of one mortgage payment – but it’s just not that all that much money today, and it complicates the tax picture for casual gamblers.

It’s really the opposite of the way the IRS should be going.

The IRS gets enough from us. While I understand the desire for new revenue, lowering this threshold won’t do the treasury a lot of good and it could cause those of us who enjoy Vegas from time to time a fair amount of heartache.

I hope the IRS takes a pass on this one. Casual gambling – whether that’s a great Kentucky horse race or hitting 21 on blackjack – shouldn’t require this much paperwork.

Got tax questions? Let us know. You can reach me, Nathan Vinson, at nvinson@elpolaw.org or (270) 781-6500.