The Online Poker Player Resource

The IRS (a U.S. government tax agency) has officially released a statement that clarifies the regulations on the withholding of tournament winnings that are over $5,000.

Players will not have their tournament prize money withheld if they have the proper identification and tax payer code such as a social security number (social security numbers apply to U.S. players). They will instead receive a formal document called the W2-G form from the casino that hosted the tournament in which they won their prize money from. Players, using this form, must report their winnings in their next tax return. Even if a casino fails to report any player’s winnings over $5,000, the individual player must still report their winnings. Players failing to provide the proper identification needed for reporting will then face 28% federal tax deduction from their winnings by the hosting casino. The deduction that is applied can be returned depending on what their earnings were. This has been the norm for poker players.

Tournament sponsors will be the group that is most affected by the IRS’s regulations. In the past, reporting of tournament and W-2Gs distributions had various loose interpretations. Under the new rules, tournament sponsors will now have to be more stringent since it has been made clear on what needs to be reported.

The new regulations will not fully be in affect until after March 4, 2008. After this date, those tournament sponsors who fail to report winnings that go over the $5,000 mark will then be held accountable for the money that should have been reported or withheld at a rate of 25%.

All in all, the regulations are the same. The IRS has simply made the regulations more clear and added a rule that will basically force the tournament sponsors to comply.