2a. Re: IRS 25% witholding of poker winnings, are slots next
Date: Wed Sep 5, 2007 5:59 am ((PDT))Most of us have tax witheld from our paychecks. Why should it be different for
poker players? The total tax liability will not change, just the timing of
paying some of the tax.
While this is true, if you have lots of deductions, or otherwise don't expect to owe tax, you can fill out a form (?W9 -- it's been a LONG time since this has applied to me) -- to adjust the AMOUNT taken out, so that your tax withheld will at least be somewhere near what you will eventually owe. This does not appear to be an option for the poker tournaments.
For a regular tournament player, paying large entry fees throughout the year, losing 25% of your return when you win, even if it's just until they process your return next year, can have a serious effect on cash flow during the first year it happens. IF the amount was about the same each year (not really the case with tournaments, that tend to go hot and cold, mostly cold), after the first year, the tax refunded would cushion the amount withheld -- but for that first year, the effect on cash flow would be substantial, and if you use that money to live on, like tournament pro's do, that's a real problem.
Whatever you earned and expected to live on during the year would be decreased by 25% -- of course, if you won enough, you're going to owe additional tax when you file anyway, but that's another story.
But if they're really pro's, they'll need to deal with it, just as every businessman deals with unfair or inconvenient tax policies. Most successful / top pro's have enough bankroll to carry them through such a cash flow problem, but the next tier may frequently be successful long-run, but still find the withhold to be a big problem.
And of course, if you have losses to offset the wins so that you're not going to owe tax on it, why should the government get to keep part of your win until you file and the process your refund? They won't be paying you interest on that money!
It's the same as if they over-withheld on your salary, keeping a big chunk of YOUR money until you filed your return and got it back.
In Indiana (and several other states), the gross income tax applies to gambling winnings and is withheld whenever a W2G is issued, which the Indiana casinos do on poker tournaments with a payout of $1200 or more to a player. Gambling losses can't be used to offset the winnings, it's essentially a "gross" (no pun intended, I think) gambling income tax. Many other states seem to be similar.
But the federal tax and the federal withhold will be much more significant than any state's withholding.
Wonder if there will be a "loophole" in this for special circumstances?
--BG
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