Slots Jackpots Under $5,000 to Become Exempt From Tax Withholding—Proposed IRS Rules

Tax withholding on slot machine jackpots is a common frustration for US casino gamblers, but a proposed change to IRS rules would make it rarer by raising the threshold to $5,000. Commissioner Danny Werfel expressed support for a recent IRS Advisory Council recommendation to increase the maximum win before automatic withholding kicks in.

Werfel made statements that backed the IRSAC recommendations during an appearance at the House Appropriations Committee’s Financial Services and General Government sub-committee on May 7. Under existing rules, operators must provide slot players with a W-2G form for every win of $1,200 or more. Notably, the threshold hasn’t changed since being adopted in 1977, and critics have long suggested raising limits to account for inflation.

Regardless of the change, players still owe income tax on net gambling winnings at the end of the year. However, increasing the withholding threshold substantially decreases the bookkeeping burden for most gamblers. It’s up to those who’ve had their winnings withheld to track their losses and reclaim those deductions come tax time.

In its November report, IRSAC agreed change is needed, noting that, when accounting for inflation, a comparable jackpot today is closer to $5,800. Although slightly less generous with its official recommendation, the council suggested the treasury adopt a new threshold of $5,000 for slot wins. The group also recommended the limit receive periodic review and cost-of-living adjustments.

In response to a question by subcommittee chair Rep. David Joyce, Werfel indicated that he supported raising the slot threshold. However, he said the decision ultimately belongs to the treasury.

I think it’s very valuable when we get input from the taxpaying community and our Advisory Council on when thresholds may be out of date. The determination of something like that is of regulatory nature and therefore the decision rests with the Treasury’s Office.

Still, the recommendation, he added, is “under serious consideration.”

Online Slot Players Unaffected By Proposed Change

As Bonus has detailed before, gambling tax laws are confusing.

The IRS requires that US gamblers pay taxes on winnings, but the reporting and withholding thresholds are unique to each game type. The $1,200 slot threshold is the lowest, while the table games and poker tournament win limits start at $5,000.

The agency complicates things further by classifying retail electronic table games as slots and live dealer games at online casinos as table games.

However, unlike their retail counterparts, online casinos don’t have to withhold taxes on slot jackpots if the player is a legal resident or US citizen. Still, they are responsible for withholding a portion of live dealer wins of $5,000 and above.

The exception for US online casinos means a change to the slot threshold won’t affect online slot players. A caveat is that high-roller online live dealer players might feel the consequences if officials follow a similar adjustment to the table games threshold.

Recommendation Has Congressional, Industry Support

Notably, the congressional reps from Nevada and Pennsylvania, Dina Titus and Guy Reschenthaler, have long supported raising the slot threshold. The pair even introduced legislation to address the issue independently.

In 2022, they introduced the Shifting Limits on Thresholds, or “SLOT” Act, arguing that the threshold creates unnecessary overhead and adds paperwork for casinos. They also claimed the current threshold disrupts the player’s experience and takes the game offline.

Further, the proponents have noted that $1,200 bought significantly more in 1977 than it does today. Specifically, in 2024, they say the equivalence is closer to $6,200. However, like the IRSAC recommendation, the legislation also calls for an initial bump to $5000.

More recently, Titus and Reschenthaler wrote in a Feb. 5 letter signed by 24 members of Congress that the current threshold needs to be updated.

Taking this action will align with the IRS initiative to strategically use data to improve tax administration and modernize tax reporting for our constituents. Due to inflation, this outdated standard has significantly increased compliance burdens on taxpayers and operating costs for casinos across the country.

Likewise, the American Gaming Association (AGA) has long supported efforts to change the reporting threshold. In February, CEO Bill Miller called on Werfel to accept the recommendation.

The antiquated slot tax threshold creates unnecessary burdens for consumers, casino operators, and the IRS.

About the Author

Robyn McNeil

Robyn McNeil

Robyn McNeil (she/they) is a Nova Scotia-based writer and editor, and a lead writer at Bonus. Here she focuses on news relevant to online casinos, while specializing in responsible gambling coverage, legislative developments, gambling regulations, and industry-related legal fights.
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