The Taxman Cometh

Video technology has brought big changes to casino players, not only in terms of what we play and how we play, but also in sharing our good times with the folks with their hands out in Washington, D.C. and Springfield, Illinois.

When players bet 45, 90, even 250 coins at a time instead of the old limits of 2, 3 or 5, wins of thousands of coins come much more often. And if the machine's coin denomination is high enough, some wins that are just big enough to keep the player in action for a while will trigger IRS reporting requirements. Casinos are required to have the player sign IRS form W-2G before paying any jackpot of $1,200 or more. It doesn't matter if that jackpot is going to someone who just wagered 50 cents, or someone who just wagered $250 or more. The government wants to know about it.

Last week, I received an e-mail from a player who didn't think that was quite fair:

At the Venetian last week, I was playing a 50 Play Double Double Bonus Poker machine. I was betting five quarters each hand for a total of $67.50 per game. In one hand I won total of $1,400. This was the total win of the 50 hands combined. The casino and I argued over the necessity of a W-2 form (which I was required to accept). Why should I get a W-2 form? I was playing 50 different hands, betting $1.25 on each hand. None of the paying hands was a jackpot hand -- merely four-of-a-kinds, etc.

To me this would be the same as playing 50 individual hands on a single play machine and having to pay taxes on the aggregate 50 games. Any answer?

I couldn't give the answer the reader really wanted. Anyone who plays multiline video games has to hope both the federal and state revenuers will take a giant step into the present and revise the tax code as it applies to gamblers. But for the foreseeable future, we have to deal with this reality:

Even though we now play up to 20 pay lines at a time on slots and up to 50 -- and soon to be 100 -- hands at a time on video poker, the IRS sees each push of the button as a single play. One game of 50 Play Poker may yield 50 different results, but to the IRS it's all just one game. If the winnings on the 50 hands combined add up to $1,200 or more, you'll have to sign the tax form.

That is not likely to change in the near future because gamblers don't have a strong enough voice in the U.S. Congress or Illinois Legislature. When lawmakers focus on gaming, the issues usually are concerns of the casino industry or its opponents, not those of players.

The Illinois state tax situation is more onerous than the federal tax. Players who keep careful records can deduct losses up to the amount of wins on federal taxes. The state allows no such deductions. Any wins that require IRS paperwork are taxed in full by the state, even if the player loses money overall.

Players should think about tax requirements and jackpot levels when choosing a game. If you play 50 Play Poker for the maximum 250 quarters, anytime you get four of a kind on the initial deal in a non-wild card game, you're going to wind up with a tax form. Play for dollars, and tax requirements kick in on pre-draw flushes, and even on pre-draw straights in some games.

If the situation upsets you, complain. Complain to the casino. Complain to your state representative. Complain to your congressman. Certainly the tax requirements are badly in need of revision. They're a holdover from the days when most bets on machine games were for two or three nickels or quarters. Requirements should be rewritten so that the reporting level is proportionate to bet size. But I'll guarantee that's not the first thing on your representative's mind every morning, and it won't be unless he or she hears from you.