The IRS and baccarat

2 August 2015

By John Grochowski

QUESTION: Years back, I traded on stocks and options on Wall Street, and became aware of the cat-and-mouse games played between the IRS and lawyers for the large firms on the street. Each time a restrictive covenant pushed through in favor of the IRS, hordes of legal maneuvering took place in search of loopholes.

My thinking on casino taxes is as follows: Should the IRS prevail in its desire to lower the W-2G jackpot threshold to $600, can't the casinos have any payout above $599.99 through $1,199.99 split up somehow so it reflects as two bonuses lower than $600 and thus does not trigger a W-2G?

There would need be a reprogramming effort by the slot/vp machine manufacturers, but I'm guessing that would not be too big a deal.

ANSWER: I don't think the IRS would buy that. As it is, on games such as Ten Play Poker, if the payoff on the 10 hands TOTAL $1,200, the IRS considers it a single W-2G jackpot.

On $1 Jacks or Better, for example, you might get dealt four of a kind. The 10 jackpots each are $125. If you got 10 fours-of-a-kind on single-hand games, there would be no tax form, they would be treated as 10 separate $125 payoffs. But on Ten Play, the IRS regards it as a single $1,250 payoff, in excess of the current W-2G threshold of $1,200.

It’s the same principle if you go into a free spins bonus on video slots. You’re probably not going to hit the $1,200 mark if you’re wagering 1 cent per payline, but bigger bettors might find themselves with 20 free spins, none of which comes anywhere near the threshold by itself, but which collectively amount to more than $1,200. Since all those winnings stem from a single bet, the IRS regards it as one W-2G-level jackpot instead of 20 small wins.

No matter what the component payoffs or how they're distributed, if one play yields a high enough total payoff, the IRS is going to want the paperwork.


QUESTION: Why can’t everyone get their own hand in baccarat, like in blackjack? I find it weird, sitting with four or five other players at a mini-bacc table, and having there be only two hands dealt.

ANSWER: Baccarat is not blackjack. It’s a different game with its own tradition, and part of it is that any bettor can wager on either the player or banker hand. Dealing separate player hands could change the nature of the game – would you still permit players to bet on the banker hand rather than their own?

Speed of play also is an issue. With only two hands, third-card decisions made by rule rather than player strategy or whim, and easy payoffs since the dealer does not have to evaluate extra hands, baccarat can move very fast. Extra hands, extra decisions, and payoffs involving evaluating multiple hands would slow the game down.

At mini-baccarat tables where players never touch the cards, the game can move in excess of 200 hands per hour, even at a full table. By contrast, a full seven-player blackjack table moves at only 60 to 70 hands per hour.

Baccarat moves a lot slower at big tables in high-limit rooms, where players handle the cards. But for those with modest bankrolls, game speed is the reason baccarat is available with house edged of 1.06 percent on banker and 1.24 percent on player. Those are extremely low for a no-skill, no-strategy game. Blackjack basic strategy players can do better, but those without the skill face higher edges.