Time for IRS to Increase W2G Slot Reporting Limit

The American Gaming Association published its seemingly annual press release asking the IRS to increase the slot win reporting from the current $1,200 minimum to an amount that reflects inflation.

In 1977, the IRS began the requirement for casinos to report a slot or video poker win of $1,200 or more. The winning player receives a W2G for this transaction and must pay taxes on the winnings in most cases.

The $1,200 W2G reporting may have made sense in 1977. It does not now.

Inflation made $1,200 level unrealistic

The intended purpose of the $1,200 threshold was to force reporting on large jackpots for tax purposes. Inflation over the past 43 years has made that number obsolete. The $1,200 amount in 1977 is equivalent to $5,077 today, according to an inflation calculator. The American Gaming Association requests that the reporting amount go up to $5,000, which is in line with this figure.

Unnecessary work for casinos

Slot attendants have many job duties. One that takes up a portion of their time is creating W2G tax forms for winners of jackpots that are at least $1,200. While this can be a source for tips for employees, it costs the casino money to pay slot attendants and compliance departments to perform this function all day. Raising the threshold to $5,000 would save casinos on labor. That is especially important during these times.

Unnecessary contact between customers and employees

When a player wins a jackpot, the machine locks up and must be reset by a slot attendant when it is paid and reported. Another employee must be a witness to the payout. This puts three people in proximity that otherwise would not be needed if the credits could just be awarded on the machine. Social distancing is impossible for this transaction. The fewer that occur, the better it is for public health.

Annoyance to players

Slot and video poker players that hit a taxable jackpot are typically locked out of the machine until the win is verified and paid. In the meantime, the player can get bored waiting for a process that can take up to an hour if the casino is busy. Eliminating the delay on jackpots under $5,000 would make customers happy. This keeps the money in action and can increase tax collections for state and federal governments.

Taxable jackpots hurt casino action

A jackpot on a $1 slot or video poker machine will usually generate a W2G. A $0.50 royal flush does the same. This keeps players at lower denominations and makes higher limit players less likely to give action that casinos will so desperately need when reopening time comes. Casinos pay gaming taxes to states and income taxes to the federal government. The amount gamblers pay in taxes on winnings is pennies compared to this. Discouraging that action is penny wise, pound foolish.

Standard deduction increase adversely affected gamblers

Congress nearly doubled the standard deduction for the 2019 tax year. This hurt gamblers that file with W2Gs in a tax year. That is because there is less of an impact when deducting losses. Many gamblers will end up paying taxes on entire W2G jackpot wins because the standard deduction is higher than the amount of offsetting losses. Even if the W2G is greater than the new standard deduction, the gambler will essentially pay taxes on the amount that lies between the old and new number.

The W2G threshold should have been addressed at this time. It was not. It is never too late.

Effect on video table games

Video table games are certain to be more popular than before the pandemic shutdown. Higher limit players will run into problems on these machines. A player that bets $300 or more at video blackjack and has a split or double down would end up with a W2G on a winning hand. Half of that money would be the original bet, yet the gambler must pay taxes on it.

Video roulette players have a similar problem. A straight bet of $35 or more will trigger a W2G. A don’t pass/don’t come player will run into the same problems on large seven-out rolls. If we are going to encourage video table games for health reasons, it does not need to cost players money.

State video lotteries operate with current $1,200 reporting in mind

The South Dakota Video Lottery caps winnings at $1,000 per game. This eliminates the need for bartenders to deal with tax forms. There is a push to offer bigger games in the state. Raising the gambling win reporting threshold would make that possible.

South Dakota receives half the money lost in video lottery machines in the form of taxes and has no state income tax. Raising the IRS taxable jackpot limit would encourage more higher limit action that in turn generates more state taxes. It could also encourage states like Oregon and Montana with lower maximum wins to expand video lotteries.

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