Withholding & Reporting
Federal Requirements
The Internal Revenue Service has withholding and reporting requirements for certain gambling prizes. Whether the licensee may be required to report prizes awarded and to withhold income tax from a prize depends on the type of event, the amount of the prize, and whether the winner provides proper identification and his/her social security number.
Cash and noncash prizes are both subject to withholding and reporting requirements. Therefore, the fair market value of noncash items should be used to determine the related withholding and reporting requirements.
Licensees who fail to comply with these requirements may be held liable by the IRS for the tax.
Rules for withholding and reporting can be found in IRS Publication #3079, Gaming Publication for Tax-Exempt Organizations. A free copy of this publication can be obtained by calling the IRS at (877)829-5500 or by visiting their web site at www.irs.gov/pub/irs-pdf/p3079.pdf However, for the most current information on withholding rates, you should consult the annual instructions that accompany the IRS W-2G withholding form.
A summary of these rules, based on the 2007 W-2G instructions, is provided in the following tables:
BINGO |
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Prize Amount |
Regular Withholding |
Backup Withholding |
IRS Form W-2G Reporting |
$1 to $1,199.99 |
None |
None |
N/A |
$1,200 or more |
None |
Required if Social Security Number & I.D. are not provided (28%) |
Required |
RAFFLE |
|||
Prize Amount (less amount of wager) |
Regular Withholding |
Backup Withholding |
IRS Form W-2G Reporting |
$1 to $599.99 |
None |
None |
N/A |
$600 to $5,000 |
None |
Required if Social Security Number & I.D. are not provided (28%) |
Required if prize is 300 times the wager |
More than $5,000 |
Required
(25%) |
Required if Social Security Number & I.D. are not provided (25%) |
Required |
If the organization chooses to pay the winner's tax liability as part of a noncash prize, the withholding percentage is 33.33% of the fair market value of the noncash prize.
