More on taxes and the effects on video poker

21 January 2016

By John Grochowski

A few weeks ago, I answered a reader’s question on tax thresholds on table games and how big winnings have to be that players are required to sign a form W-2G before collecting. Table players get a tax form any time the payoff is $600 or more if the odds against winning are at least 300-1.

The mention of taxes prompted a couple of readers to e-mail me on the topic of an IRS proposal that would lower the tax form threshold for slot and video poker players from the current $1,200 to $600, regardless of bet size.

One reader just wanted a status update on the proposal, which is part of a package of several proposed changes that drew strong objections from legislators, casinos and the American Gaming Association. So far, there has been no announcement on whether the proposal will be adopted.

The other e-mail was video-poker-specific:

“It seems like that would just kill quarter video poker,” reader Jason wrote. “That $1,000 royal flush is a big attraction, and a tax form on every royal would really put a damper on it. Is there any way they could bring the game up to par without tax forms on royals with a $600 cutoff?”

It’s possible to take any base game, reduce the royal and tinker with the rest of the pay table to come up with a game that approximates the payback percentage on current games. The tinkering doesn’t even have to be all that drastic.

I used the most basic game, 9/6 Jacks or Better, to see what kind of change would be needed. For the royal flush value with five coins wagered, I used 2,396 coins. That’s a $599 jackpot on a quarter machine, $1 under the proposed $600 tax form threshold. There’s precedent for that. Though such games are rare today, some video poker games of the 1980s and 1990s offered $1,199 jackpots, $1 under the $1,200 W-2G standard.

With no other changes on the pay table, 9/6 Jacks or Better returns 98.8% with expert play, less than 1% under the 99.5% on 9/6 JB games with a full 4,000-coin royal.

The first thing I checked was whether the reduced royal game could be brought up to 99.5% by increasing payoffs on full houses or flushes. It turns out, that gives the player too much.

Increase the full house payoff from 9-for-1 to 10-for-1, and even a reduced royal game returns 99.99%. The effect is even larger on flushes, where an increase to 7-for-1 ups the overall return to 100.16%.

Next I tried raising the four-of-a-kind pay from 25-for-1, or 125 for a five-coin wager, to 30-for-1, or 150-for -5. That also was too much, raising the 2,396-coin royal game to 100.2%.

So for a simple, one-hand change, that left straight flushes, which normally pay 50-for-1, 250-for-5. You can more than double the payoff to 110-for-1, 550-for-5, and takes 9-6 Jacks or Better with a 2,396-coin royal to 99.5%.

You could also hit the target by changing multiple hands, reducing full house and flush pays while raising the payoff on quads, much like today’s Bonus Poker variants.

Would casinos want to offer such games? Would players accept them with the reduced royal? Fingers are crossed that the proposal is rejected and we never have to find out. But yes, it is possible – not difficult at all – to design reduced royal games that approximate paybacks on current games.


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