Starting next year, casinos and card rooms must withhold 25 percent of winnings over $5,000 for anticipated tax payments.
The IRS released a new procedure this week, which will apply to payments made on or after March 4, 2008. The $5,000 figure applies to a gambler's profit, Part Time Poker News explained. "If you entered a tournament with a buy-in of $10,000 and cashed for $12,000, you'd be fine with a net win of $2,000. Enter for $30 and win $5,030, however, and you'll be exiting 25 percent lighter."
A court ruling earlier this year held that tournament poker is not a skillful competition and should therefore be considered a gambling activity and subject to automatic withholding. The law requires casinos and cardrooms to withhold and report the winnings from a player if it amounts to $5,000 or more in a tax year.
Texas Hold'em tournaments offering millions of dollars in prize money are so popular they are televised, and local tournaments, often arranged as charitable fundraisers, are becoming more common.
Gambling winnings must be reported on your tax return. "The biggest thing when you win is they (the casino, racetrack, etc.) will issue you a W-2G," said Ralph Havens, director of Professional Services for JK Harris and Company, a South Carolina-based tax resolution firm. "The IRS will look for that on your tax return under 'Other Income.'"
For more information, read the text of Revenue Procedure 2007-57.