25% Withholding Tax Proposal on Poker Tournament Winnings Nixed

To the relief of many pro poker players who frequent the tournament circuit, a proposed Internal Revenue Service rule to withhold 25% of tournament winnings of over $5,000 (a net figure also taking entry and buy-in fees into consideration), will not see the light of the day.

According to Wally Chalmers, Vice President of the American Gaming Association, a powerful group that works on behalf of land-based casino interests, the 25%-withholding idea was abandoned after an assessment of the rule's viability and negotiations with the IRS's rules-making group. The AGA's Tax and Finance Task Force played an important role in lobbying against the proposal, which would have both significantly increased casinos' reporting burden and reduced the liquidity of tourney pros as they move from one event to the next. Such loss of liquidity would have had a negative impact on some players' ability to secure entry fees to a given event, and over the long term threatened to reduce the number of players able to regularly finance their way into high-buyin U.S.-based events.

Instead, winning players will be issued an earnings/tax statement of some form declaring their winnings. This may turn out to be the IRS's Form W-2G, which is used to report miscellaneous income (such as casino-game winnings over $1,199), but the exact form and reporting method to be used is still being negotiated. In any case, however, players will be expected to report their winnings and a tax form of some sort will be issued.

According to Chalmers, who was kind enough to take time out from his busy schedule to answer PokerNews inquiries, and clarify the situation, the AGA and the casino groups it represents are "very pleased that it has worked out the way it has." Chalmers also noted that a new IRS Revenue Procedure will be issued in accordance with the new rule once the final details have been worked out.

The clarified information should put to rest the stories about the "25% withholding rule being passed" that had circulated within the poker industry in recent weeks. Those stories were both widely reported by other media outlets (but not at PokerNews) and specifically mentioned a March, 2008 live date for the new rule. Rather, the memo from which the original reports surfaces was part of a proposal containing several new rules up for consideration, and the March, 2008 date was mentioned as the date when the next wave of the proposed IRS rule changes was due to be published. The withholding rule as proposed would have been live as of that date only if it had been approved and finalized, which it was not; the date was applicable to the batch of rules in general, not the proposed withholding regulation.

Anecdotal tales of several big-name pros considering relocation to Europe in response to the supposed "25% withholding" rule have surfaced in recent weeks, ample evidence of the liquidity tap the once-proposed rule threatened to impose upon the high-entry portion of the poker world. Fortunately, those concerns have now been put to rest.