LAS VEGAS — Imagine that you’ve just won $100,000 in a poker tournament. But before you can pocket the cash, the casino swoops in to collect $25,000 to pay Uncle Sam.
That was the worst-case scenario feared by casinos and players after the Internal Revenue Service issued a bulletin last month saying that casinos would be required to withhold 25 percent of poker tournament winnings over $5,000.
Withholding taxes could have devastated legions of professional poker players who require a large cash bankroll to ply their trade, driving them from land-based casinos to offshore Internet competitors that allow players to dodge U.S. tax laws.
Or so everyone feared.
Negotiations between the IRS and the casino industry appear to have yielded the rarest of all outcomes: a win for all parties.
Rather than forcing casinos to withhold players’ winnings, the IRS will require casinos to report winnings on a W-2G form. Players will continue to be responsible for paying taxes on their winnings at tax time.
The policy will take effect March 4.
“The IRS was appreciative of our efforts to ensure the flow of these tournaments,” gaming association lobbyist Wally ChalÂmers said. “We’re very happy with this procedure.”
The IRS also benefits from the decision by the creation of a paper trail on players who win more than $5,000. Gambling winnings, with some exceptions, are taxable.
Several Las Vegas casinos did not issue W-2Gs. Players at those casinos could collect winnings under the radar, potentially avoiding taxes.
Casinos that don’t report winnings could be liable for players’ back taxes, though it’s unlikely the IRS would go after the casino.
A likelier scenario would involve winners who prevent casinos from completing a W-2G by refusing to give up personal information, such as their Social Security numbers. In that case, casinos would be obligated to withhold taxes immediately, letting them off the hook for the tax bill.
If the casino does not withhold or the player cannot be found, the IRS could assess the casino the tax owed.
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