IRS Announces New Rules for Gambling Winnings on Horse Racing, Slots

The US Internal Revenue Service this week announced new rules for withholding and reporting of pari-mutuel winnings as well as games such as slots, keno and bingo.

The National Thoroughbred Racing Association (NTRA) and the American Gaming Association both applauded the announcement.

The proposal amends Section 31.3402(q)-1(c)(ii) by allowing “all wagers placed in a single parimutuel pool and represented on a single ticket to be aggregated and treated as a single wager for purposes of determining the amount of the wager. The proposed rule allows a payer to take into account the total amount wagered in a particular pool as reflected on a single ticket to determine whether the winnings are subject to withholding and reporting.” 

This amendment helps address the common practice of betting exotic bets such as trifectas that have grown in popularity since the last amendment to Section 31.3402(q)-1(c)(ii) in 1983.   Current withholdings were viewed as far exceeding what is necessary to cover a gambler’s ultimate income tax liability “and creates an unnecessary burden on the bettor and the horse racing, dog racing, and jai alai industries,” the proposal states.

Comments on the proposal are due by March 30.

“It is believed that the proposed changes will result in tens of millions of dollars in additional parimutuel wagering annually,” the NTRA said in a prepared statement. “If adopted, the new regulations will not only promote greater compliance and more accurate reporting and withholding by taxpayers, but also reduce burdensome and needless paperwork system-wide.”

Additionally, Section 3402(q)(1) mandates any person or entity that wins at gambling to withhold taxes at the third-lowest tax rate applicable. For 2016, that’s 25 percent, the proposal states.

In regard to bingo, keno and slots, the new IRS rule addresses “Information Returns; Winnings from Bingo, Keno, and Slot Machines,” and updates the existing requirements under Code Section 6041 regarding the filing, form, and content of such information returns; allows for an additional form of payee identification; and provides an optional aggregate reporting method.

- Gilbert Horowitz, Gambling911.com