Summary of Proposed Tax Reporting Changes

Summary IRS Notice 2015-21

You know by now that the IRS is holding hearings this June on casino requirements for reporting gambling winnings. If you haven’t read the details, I’d like to point out some of them to you and stress some parts of the proposed changes that might have escaped your attention. Keep in mind that these are proposals only and the regulations that are finally adopted may be very different. Also, nothing that is adopted will apply until tax year 2016.

If you want to read the proposal yourself, it’s at this web site: HERE

Here are the highlights.

First, these proposed changes are a safe harbor for “electronically tracked slot machine play.” What that means is that these changes are only for gamers playing with their player’s cards. If you have a win without your card in the machine, you’re are still being issued your W2G under the old rules for $1,200 or greater wins. You’ll need to keep a diary for any losses you hope to itemize.

Second, the casino will be issuing W2Gs to card-using players on the basis of aggregate slot winning during a single gaming session measured as the calendar day from 12am to 11:59 pm. This is good, actually, because as we play, we fluctuate between winning and losing and the casino is more or less netting these for us as it tracks our play.

For slot winnings to be reported to the IRS BOTH of the following criteria have to be met. (1) The total winnings netted against the total wagers during the same session totals $1,200 or more, and (2) At least one single slot win during the session equals or exceeds $1,200. If there is no single $1,200 win, reporting is not required. If any $1,200 win occurs and if the netted total during the session exceeds $1,200, then the total slot winnings for the session must be reported on Form W2G.

Third, a casino would no longer have to issue multiple W2Gs for a single gaming session. A single W2G could be used for all the card-in play in one day. The player using his card could net total wins and total losses from a single session (one calendar day, one casino). He cannot net wins and losses from multiple sessions. Play that stops and resumes at a single gaming establishment in the same calendar day is considered the same session of play if it is electronically tracked. He can NOT play with his player’s card and play without the card and net the two types of play under these rules.

Fourth, if a player moves from one casino to another, a new session of play begins. This is really not a new concept. If I play at Harrah’s Las Vegas for an hour and then move to Bally’s for another hour of play later that same day, even though I use the same Total Rewards Card at both, my play is tracked separately in each casino. It does not matter than both are owned by Caesars and I use the same Total Rewards player’s card both places. (This is also why the payout vouchers from one casino do not work in the other casino’s machines).  If I later play some more that same day at Harrah’s, I still have two sessions - one interrupted session at Harrahs and a second session at Ballys.

Fifth, playing a slot from 11 pm to 2 am is at least two sessions because it spans two days.

Here’s an example that shows the effect of the break into two sessions. Suppose I start the session at 11 pm June 1 with $200 and stop playing at 2 am on June 2 with $350. I notice that at 11:59 I am down to $50.
      If this were counted as just one session, I would have a $150 win ($350 - $200.) But it won’t be figured this way.

  I will have one session from 11 pm to 11:59 pm with $150 loss ($50 - $200) for June 1. I will have another session  from 12 am to 2 am  for June 2 with a $300 gain ($350 - $50). 

  If one session — I have a $150 win. If two sessions — I have a $300 win and a $150 loss that I might not be able to deduct if I can’t itemize. If this proposal is adopted, and you’re a late night gambler, it might behoove you to watch the clock and your credit total to time your near-midnight break.

I can see these proposed changes increasing the burden on the casinos who will have more reporting to do. I think it could possibly make some players’ reporting easier. I also think if IRS is asking our opinion, that they have probably already pretty much made up their mind what is going to happen, but want to give the appearance of considering our ideas. I may be wrong.

One more thing to think about:

I’ve saved this for last - not because it’s the best, but because it’s the worst. This was slipped into the section on filing requirements in the notice. It seemed almost buried, so we might not notice with all the tax talk going on. 

Basically it says that there have been advances in technology since the original regs were written almost 40 years ago. Compliance concerns prompted higher thresholds when the rules were originally written. Now it is easy for the casinos to issue W2Gs to the players and submit them electronically to IRS. So, IRS thinks this may warrant reducing the thresholds for bingo, keno, and slots to $600 [instead of $1200] consist with other reporting thresholds. They want to know what we think.

What IRS is proposing here is reducing the $1,200 requirement for hand pays and issuing W2Gs to $600. Some people would argue that the threshold should be raised, not lowered. $1,200 in 1977 dollars is now worth $4,677 according to John Mehaffey in his March 9, 2015 blog entry below.  

It may be easy now to electronically track the wins, and it may be easy to electronically submit the information to IRS, but think what it will do to the casino floor if the machines lock up for $600 hand pays! The blog written by John Mehaffey does the math for slots, and video poker, and other games of chance to show you what the effect of issuing W2Gs and hand pays for $600 will be for each game. I don’t know if he’s right - I don’t play all these games and I don’t bet at these levels - but I suspect he is.

      Take a look at this LINK and see what you think.

I’m currently doing research for a book on taxes and gambling, and have learned some interesting facts about how Canada views gambling wins. Maybe I’ll share that with you in a future blog. You’ll be surprised. You might even want to move there if you gamble a lot.