I thought this would be a good time to share some tax information with you regarding poker in general and tournaments in specific.
First of all let's all understand a concept that covers all gaming wins - that is ANY gaming win is taxable. Whether that win be private as in a home poker game or in public "hitting" a slot machine jackpot. When you stop playing if you have more money than what you started with you have a "win". That win is reportable to the federal government on your individual tax return. It does not matter whether the casino gives you a form like a W2-G or 1099. You as an individual are responsible for reporting your gaming wins. A payment on form 1099 is assumed NOT to be a gaming win and therefore no losses can be deducted against it.
All losses you can prove are deductible against your win (s) ONLY if you itemize your deductions. If you do not itemize you will be required to pay tax on your GROSS win for the year even though you had losses that were greater than that win.
Hey Jim - that's not fair! No one said it was fair. It's just the way it is. Now let's discuss only one type of gaming people engage in POKER.
No where in the Internal Revenue Service Code or Regulations is poker specifically discussed or even mentioned. The Code and Regulations cover all types of gaming from slots to horse racing but no mention of poker can be found.
The government long ago concluded that poker tournaments COULD be classified as wagering pools. Wagering pools are specifically covered in the law and regulations BUT are not adequately defined. When the government defined poker tournaments as wagering pools it would require that the withholding agent (usually the casino hosting the tournament) would be required to withhold from each and every payout of $5,000.00 or more 28%.
Those who believe poker tournaments are not wagering pools state that in order for the form W2-G to be issued without any withholding poker tournaments should be classified as an "OTHER GAMING TRANSACTION" thereby requiring the 300 to 1 odds to be met before the form is issued.
If one follows this train of thought I would assume to meet these individuals logic, in order to meet the 300 to 1 odds requirement, it would mean you would need more than 300 different entries into the tournament before the requirement to issue the W2-G would take place. I find this ridiculous. The odds of winning or losing a tournament do not depend upon how many entries there are; it depends upon the skill (luck), experience, stamina, physical condition, etc. of the players. To set odds based upon entries would force the assumption that each player was equal which is utter nonsense.
In horse racing the odds are set on many attributes and not just the number of horses going to the gate. In fact with a field of say 10 or 15 horses the odds would never approach 300 to 1 based upon entries. We know this is not the case otherwise that individual who bets $2.00 would never win $600.00. (The concept of 300 to 1 comes from the $2.00 bet in horse racing).
The 300 to 1 odds provision was established to prevent unnecessary paper work for the race tracks when having to issue forms to winners.
At some point in time the Government will resurrect the "wagering pool" argument which will in my opinion sound the death bell for poker tournaments. Meanwhile I hear such ridiculous statements by Corporate Executives in positions of authority like "we are not going to issue any W2-G because no one else is doing it". Just imagine someone is paying this person BIG bucks to make such a statement. Here is another classic........"If the government comes in and audits us and says our tournament is a wagering pool, they won't go back; they will just require us to do withholding in the future". How about this gem........"The back of the W2-G says 300 to 1 odds for any other transaction therefore we don't have 300 to 1 odds, we only have 100 entries".
What I usually do is remind these experts in the field of gaming and taxation that there is a law on the books that has been around a long time. It goes something like this............
"SECTION 6041. INFORMATION AT SOURCE
(a) PAYMENTS OF $600 OR MORE
All persons engaged in a trade or business and making payment in the
course of such trade or business to another person, of rent, salaries,
wages, premiums, annuities, compensations, remunerations, emoluments, or
other fixed or determinable gains, profits, and income (other than
payments to which section 6042(a)(1), 6044(a)(1), 6047(e), 6049(a), or
6050N(a) applies, and other than payments with respect to which a
statement is required under the authority of section 6042(a)(2),
6044(a)(2), or 6045), or $600 or more in any taxable year, or, in the case
of such payments made by the United States, the officers or employees of
the United States having information as to such payments and required to
make returns in regard thereto by the regulations hereinafter provided
for, shall render a true and accurate return to the Secretary, under such
regulations and in such form and manner and to such extent as may be
prescribed by the Secretary, setting forth the amount of such gains,
profits, and income, and the name and address of the recipient of such
The reporting, per the regulations, is to be done on form 1099. Now I no longer have to argue about 300 to 1 or wagering pools or W2-G's. Just be prepared to show the government where your casino has met the requirements of Code Section 6041.
I'd like to see all the high-buck authorities wiggle out of that one! They can't! Guess what? - each payment made to a specific individual during the year is cumulative. Let's see maybe they will claim no one person ever got $600.00 or more. Maybe $599.00. Hey, burn those back issues of Card Player before someone from the Government reads them!