Will the $1,200 Threshold for Slot Machines Ever Increase?
The $1,200 IRS threshold for reportable slot machine jackpots has been in place for nearly 45 years. Over this time, it has never been increased to adjust for inflation (or to just make things easier).
Last week, Congresswoman Dina Titus reintroduced legislation proposing to increase the reporting threshold to $5,000 for slot machine winnings and to index this figure to inflation moving forward. It should be noted that while something like this is long overdue, a similar piece of legislation was introduced last year and did not make any headway.
While it does not seem likely to pass, what impact would it have if it was successful?
It would certainly result in happier casino patrons. A higher threshold results in less reportable winnings on Form W-2G. This leads to less time waiting for casino attendants to issue forms and more time playing the machines. It would also greatly reduce the amount of time and paperwork required from casinos to report these winnings correctly.
But what about the tax impact on U.S. taxpayers? If you are reporting your slot sessions correctly, the higher threshold will not impact you. The IRS allows taxpayers to report slot machine sessions on a net basis. If you are issued $50,000 worth of W-2Gs in a session, but the session results in a loss, you are allowed to report your net result (loss) from that session. While you will receive less W-2Gs throughout the year, it won’t impact the way in which the session winnings and losses are reported.
That being said, many taxpayers do not properly record their sessions and default to reporting only those amounts on Form W-2G at the end of the year. My guess is that lawmakers are well aware of this and it is one of the reasons the threshold remains so low. The $1,200 IRS threshold “forces” people to report these winnings on their return.
Non-U.S. residents would also be impacted. If you are a resident or citizen of a non-tax treaty country, you will automatically have 30% tax withheld on any reportable gambling winnings. A higher threshold will result in less automatically reportable winnings and less tax withheld on “minor” jackpots.
Whether the reporting threshold is increased or not, it is still important to keep detailed records. The session method is one of the few “breaks” allowed to gamblers in the tax code and it can result in significant tax (and time) savings when filing your return.