Ask the Slot Expert: Automating W-2Gs and raising the W-2G threshold

On October 3, 2020, Las Vegas Review-Journal columnist Richard Velotta wrote a column (Treasury, IRS silent on raising the threshold for jackpot paperwork) calling for raising the threshold on issuing a W-2G for slot jackpots. The current threshold of $1200 was set in 1977. Unlike other tax-related thresholds, this one has never been adjusted for inflation. I think I can safely say that, 45 years on, $1200 doesn't buy as much now as it did then.

Fast forward a year and a half to March 2022. Representatives Dina Titus (NV) and Guy Reschenthaler (PA) introduced a bill to raise the threshold to $5000.

That's welcome news for video poker players. Dollar players will never have to stop for paperwork unless they hit a progressive. Two-dollar NSU players will no longer have to stop when they hit deuces. The benefits are even greater for high-denomination players and multi-hand players because even frequently hit hands will no longer require a machine lock-up.

“Increasing the slot tax threshold to account for inflation is a long overdue change that will alleviate unnecessary administrative burdens on casino operators, their customers and an understaffed and overwhelmed IRS,” said Bill Miller, president and CEO of the American Gaming Association.

The IRS benefits because fewer returns will contain gambling-related entries. The change will probably also result in a decrease in gambling-related taxes collected -- but for the right reason.

Let's say you hit the top combo on a slot or you finally hit the royal you've been chasing for so long. You get a W2-G. Recreational gamblers don't usually keep records, so they just put the whole W-2G amount on the form as gambling income and include the whole amount in their income -- even though their net winnings for the year might be substantially less or a loss.

The IRS won't collect these taxes on phantom income if the threshold is raised, but it also won't have to verify that the people who received these W-2Gs reported them on their tax forms. It might be a net win to cut out these "nuisance" W-2Gs.

The other justification Mr. Miller gave was to lessen the administrative burden on casino operators -- i.e., preparing the tax forms and getting the players to sign them. And let's not forget that somebody has to prepare and pay out the handpay and that the handpay requires a witness.

I signed up for something today that may eliminate that justification for increasing the threshold.

First, let's step into the Wayback Machine.

I was playing video poker in one of Red Rock's high-limit areas. A man was playing a multi-hand machine near me. I heard the jackpot music come from his machine. A few seconds later, the machine was quiet and he was playing again. That's funny. No one ever came with his money or tax form. No one even had time to prepare them.

I watched more closely when the machine regaled him with the jackpot music again. I saw that he entered something in the slot club panel on the side of the monitor. (Instead of having dedicated displays for the slot club, these machines steal the left side of the game display when you need to interact with the slot club system.)

I remember reading a story about a lady whale playing high-denomination slots at Caesars Palace. She had a dedicated slot floorperson filling out her W-2Gs every time she hit a reportable jackpot, which was quite often. That was many years ago. I didn't know that new slot systems had automated the process.

Same high-limit area, different machine. I hit a $1200 four-of-a-kind. Yippee! Ten minutes later, I hit the $1200 quad again.

This second time the slot floorperson paid me, he offered to set me up with the automated W-2Gs if I thought I was going to hit handpays frequently.

I didn't expect to hit more handpays. I was playing dollars, not a higher denomination, and that quad was one of the best-paying hands I could hit. I was very lucky to hit two and not likely to hit any more handpays. Besides, I was almost done playing. I declined the offer.

I don't know if the automated W-2Gs was only good for that day or only good for machines in the high-limit area. The floorperson didn't say that I would never have to wait for a handpay again.

Back to the present day.

I had seen a poster for Instant Jackpot in Suncoast. It was right next to the poster for Boyd Pay. I wrote in the past about the fees charged to use Boyd Pay. I recently received a mailer saying that fees would be waived until March 2023, so I will try it now. The same mailer said I would never have to wait for a handpay again if I signed up for Instant Jackpot.

So today I did. Sign up, that is. I signed a W-9 to attest to my Social Security Number and I also signed the Instant Jackpot Terms and Conditions agreement.

The next time I hit a handpay, I'll have the option of going through the usual dog-and-pony show or having the jackpot added to my credit meter. I'll also have the option of getting a W-2G for the jackpot or just having it added to my W-2G tab and getting a statement mailed to me at the end of the year.

I'm looking forward to not having to wait for handpays again. Not having to tip for a royal pleases my Scottish heritage. (I always tip for a handpay, even when the floorpeople don't expect one and I have to call them back to give it to them.)

Now I find myself in an interesting situation. I had one conclusion about the effect of automated W-2Gs on the threshold-raising argument in mind when I started this column. Now that I'm at the end, I'm going to write the exact opposite conclusion.

I was originally going to write that automating the W-2G process eliminates the "paperwork burden" justification for raising the threshold because, well, the paperwork has been eliminated. We can use all the reasons in favor of raising the threshold that we can get.

But then I thought, Who is going to sign up for this system? Not recreational gamblers for whom getting a W-2G is a rare event. Only frequent visitors to a casino who play machines with handpay potential (dollar and up video poker, high-bet slots) will take the time and trouble to sign up. The casino is still going to be issuing many W-2Gs.

Instant Jackpot eliminates the paperwork for only a small number of players. "Paperwork burden" is still a valid reason to raise the threshold.

I mentioned this briefly before and I think it really is the best reason to raise the threshold.

According to Mr Miller, players who received W-2Gs under the increased threshold are more likely to have net slot winnings for the year. In other words, many of the players with one or a few low-amount W-2Gs are actually net losers for the year.

Raising the threshold will reduce the number of people paying taxes on net gambling losses.

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