Bounding o'er the salty
main with the IRS
28 February 2005
By Mark Pilarski
Dear Mark,
Could you please tell me if cruise ships are
required to issue a W2-G to passengers who win
more than $1,200? We have friends who won $7,000
on a cruise ship and were paid in cash, with no
paperwork whatsoever. I thought you had to pay
taxes on that amount. Don M.
Dear Mark,
I was on a cruise ship out of New Orleans, but
in neutral waters near the Bahamas when I hit a
$1,500 jackpot. I was issued a W-2G along with
my jackpot. My question, if I am in neutral
waters, why was I issued one? Do I have to pay
taxes on the $1,500 win, even it wasn't won in
the US? Theresa H.
Over the years, Don and Theresa, I have
occasionally received correspondence from
readers supporting what Don is saying: not
everyone is getting a W-2G on slot jackpot wins
at sea. Ah yes, but hear the bitter truth --
they should be receiving a W-2G if their jackpot
crosses a certain threshold. And although Don's
friends may have squeaked past the W-2G toll
booth, their winnings, in the eyes of the IRS,
whether snagged in the Bermuda Triangle or in a
cellar-dweller casino in Moscow, are just what
is meant in the IRS statement that any winnings,
from whatever form of gambling worldwide, are
taxable and must be reported as "Other Income,"
on Form 1040, of the U.S. Individual Tax Return.
So, what size jackpot should trigger traceable
paperwork? According to Uncle Sam:
...winnings of $1,200 or more from slot machines
and bingo are taxable. As for on-the-spot
withholdings, there shouldn't be any on jackpots
of less than $5,000, unless you fail to provide
a valid social security number, in which case
they can withhold 29% of the booty won. If the
spoils are more than $5,000, the casino is
required to withhold 25% of the proceeds for
Federal Income Tax.
...winnings on all table game progressive side
bets with payouts of 300 to 1 or more are fair
game for the IRS. Although W-2Gs are not
required for typical wagers won from table games
such as blackjack, craps, baccarat, roulette,
etc., even if you got a decent chunk of change
on the layout -- but regardless of the amount,
casinos are still subject to the "Money
Laundering Rules", and must report to the IRS,
using a Cash Transaction Report (CTR), aggregate
cash transactions of $10,000 or more in any one
day.
...winnings of $1,500 or more from keno, less
the cost of the tickets bought on the winning
game.
...winnings of $600 or more from horse racing,
dog racing, or jai alai, if the winnings are at
least 300 times the wager.
...winnings of $600 or more from poker
tournaments, (although I am informed by a few
recent e-mails that this rule is not being
applied consistently)
...and winnings of $600 or more from state
lotteries.
Finally, now that you have won a jackpot and
received a W2-G, don't try to keep your windfall
under wraps from Uncle Sam. The IRS also
receives a copy of your W2-G from the casino,
and their computers are already hungry to share
your kismet well before you file your returns.
Gambling quote of the week: "Decide on three
things at the start: the rules of the game, the
stakes, and the quitting time." Chinese Proverb
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