Fire bet: Calculating the odds.

IRS REGULATIONS.
Reportable Gambling Winnings
Report gambling winnings on Form W-2G if:

The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine,

The winnings (reduced by the wager) are $1,500 or more from a keno game,

The winnings (reduced by the wager or buy-in) are more than $5,000 from a poker tournament,

The winnings (except winnings from bingo, slot machines, keno, and poker tournaments) reduced, at the option of the payer, by the wager are:

$600 or more, and

At least 300 times the amount of the wager, or

The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding).


Tax-Exempt Organizations
A tax-exempt organization conducting gaming activities may be required to withhold income tax and report on Form W-2G. See Pub. 3079, Tax-Exempt Organizations And Gaming.

Withholding
There are two types of withholding on gambling winnings: (a) regular gambling withholding at 25% (33.33% for certain noncash payments) and (b) backup withholding at 28%. If a payment is already subject to regular gambling withholding, it is not subject to backup withholding.

Regular Gambling Withholding
You may be required to withhold 25% of gambling winnings for federal income tax. This is referred to as regular gambling withholding. Withhold at the 25% rate if the winnings minus the wager are more than $5,000 and are from:

Sweepstakes,

Wagering pools,

Lotteries, or

Other wagering transactions if the winnings are at least 300 times the amount wagered.


Do not withhold at the 25% rate on winnings from bingo, keno, slot machines, or any other wagering transaction if the winnings are $5,000 or less. However, see Backup Withholding below.

Regular gambling withholding is figured on the total amount of gross proceeds (the amount of winnings minus the amount wagered), not merely on the amount in excess of $5,000.

Report the amount you withheld in box 2 of Form W-2G. Also file Form 945, Annual Return of Withheld Federal Income Tax, to report all your gambling withholding.

Noncash payments. A noncash payment, such as a car, must be taken into account at its fair market value (FMV) for purposes of reporting and withholding. If the FMV exceeds $5,000, after deducting the price of the wager, the winnings are subject to 25% regular gambling withholding. The tax you must withhold is computed and paid under either of the following two methods.
The winner pays the withholding tax to the payer. In this case, the withholding is 25% of the FMV of the noncash payment minus the amount of the wager.

The payer pays the withholding tax. In this case, the withholding is 33.33% of the FMV of the noncash payment minus the amount of the wager.


If you use method 2, enter the sum of the noncash payment and the withholding tax in box 1 of Form W-2G and the withholding tax paid by the payer in box 2.

Backup Withholding
You may be required to withhold 28% of gambling winnings (including winnings from bingo, keno, slot machines, and poker tournaments) for federal income tax. This is referred to as backup withholding. You should backup withhold at the 28% rate if:

The winner does not furnish a correct taxpayer identification number (TIN),

25% has not been withheld, and

The winnings are at least $600 and at least 300 times the wager (or the winnings are at least $1,200 from bingo or slot machines or $1,500 from keno or more than $5,000 from a poker tournament).


Figure any backup withholding on the total amount of the winnings reduced, at the option of the payer, by the amount wagered. This means the total amount, not just the payments in excess of $600, $1,200, $1,500, or $5,000, is subject to backup withholding at 28%.