This Daily Tax Tip Spotify Podcast and/or WordPress Blog Post is in response to inquiries regarding the Withholding Taxes that apply to amounts you may win in wagering or gambling activities.
Gambling Winnings of more than $5,000 from the following sources are generally subject to Mandatory Income Tax Withholding:
(1) Any Sweepstakes, wagering pool, including payments made to winners of Poker Tournaments, or Lottery, and
(2) Any other wager if the proceeds are at least 300 Times the Amount of the Bet.
If proceeds from the wager qualify as winnings subject to withholding, then the total proceeds from the wager, and not merely amounts in excess of $5,000, are subject to withholding. The withholding rate is equal to the Third Lowest Income Tax Rate under the income tax rate brackets for unmarried individuals.
Gambling winnings from bingo, keno, and slot machines generally are not subject to Income Tax Withholding. If the payer asks, you must give the payer all the following information:
(1) Your Name, Address, and Social Security Number;
(2) Whether you made Identical Wagers; and
(3) Whether someone else is entitled to any part of the winnings subject to withholding, in which case you must complete Form 5754 Statement by Person(s) Receiving Gambling Winnings, and return it to the payer. The payer will use it to prepare a Form W-2G for each of the winners.
Amounts paid on Identical Wagers are treated as paid on a single wager for purposes of calculating the proceeds from a wager:
Amounts paid on two bets placed in a Parimutuel Pool on a particular horse to win a particular race are treated as paid on the same wager. However, those two bets would not be identical if one were “to win” and the other “to place,”
Or, if the bets were placed in Different Parimutuel Pools:
A pool conducted by the racetrack and a separate pool conducted by an Offtrack Betting Establishment in which the wagers are not pooled with those placed at the track.
Tickets purchased in a lottery generally are not Identical Wagers, because the designation of each ticket as a winner generally would not be based on the occurrence of the same event, e.g., the drawing of a particular number. You may have to give the payer a statement of the amount of your winnings from identical wagers. You provide this statement by signing Form W-2G or, if required, Form 5754.
It does not matter whether the winnings are paid in cash, in property, or as an annuity. Winnings paid in a form Other Than Cash are taken into account at their Fair Market Value.
If you have any kind of gambling winnings and do not give the payer your taxpayer identification number, the payer may have to withhold income tax at the Backup Withholding Rate. This rule also applies to winnings of at least $1,200 from bingo or slot machines or $1,500 from keno, and to certain other gambling winnings of at least $600.
A payer that withholds income tax from gambling winnings must send you a Form W-2G Certain Gambling Winnings, showing the amount you won and the amount withheld. The payer also must report amounts withheld on Form 945, Annual Return of Withheld Federal Income Tax.
Please call me at your convenience so that we can discuss the rules regarding withholding on Gambling Winnings as they apply to your particular situation.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 06052021-1 320-651)