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Tax on Winnings

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.

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