Poker is hotter than ever, thanks to cable TV coverage of big-money tournaments. However, the allure might fade because of a new rules clarification by the Internal Revenue Service.
On Friday the IRS said that casinos and other tournament holders will be required to report most winnings, to both winners and the IRS, starting March 4, 2008. In guidance released last month, the IRS and the Treasury Department noted that there has been great confusion in recent years about whether tournament sponsors who hold the money for participants are required to report winnings to the IRS and withhold players’ taxes from them.
Here’s the good news: the requirements do not apply retroactively. Winnings in tournaments completed before March 4, 2008, will not be subject to IRS reporting or withholding. And the new rules apply only to winnings of more than $5,000.
Tournament sponsors who comply with the reporting requirement will not need to withhold federal income tax at the end of a tournament. For sponsors that do not report winnings, the IRS will enforce the reporting requirement and also require the sponsor to pay any tax that should have been withheld from the winner. The withholding is normally 25 percent of reportable amounts.
To assure compliance, tournament winners must provide their taxpayer identification number, usually their social security number, to the tournament sponsor. If a winner fails to provide this, the tournament sponsor must withhold federal income tax at the rate of 28 percent.
By law, tournament winners must report all their winnings on their federal income-tax returns. That applies regardless of the amount and regardless of whether the winner receives a Form W-2G or any other reporting form, the IRS noted. That already was the case and will continue to be so.