Benjamin Franklin said: "In this world nothing is certain but death and taxes."
He is still right on the mark, whether we play poker or not, death and taxes seem to go hand in hand. We are taxed to death. We are taxed until death on everything, and even after death someone has to pay taxes on our casket and headstone. It never seems to end, and we won't even get into estate taxes, inheritance taxes and the like.
Poker is the chosen profession of many, and tournaments are one of the ways they try to make their living. Granted, some live way better than others, but that is another subject. Up until now it has mostly been up to the professional player to keep track of his winnings and losses and file his taxes accordingly. The IRS rule is: ALL winnings must be reported by the taxpayer, whether they received a Form W-2G or not.
This is all about to change for tournament players.
Uncle Sam wants to make sure you pay him his cut of your tournament winnings. Starting March 4, 2008, sponsors of tournaments will be required to report the winners and any winnings of over $5,000 to the IRS. Sponsors who comply with the tax reporting rules do not have to withhold the federal tax, but have to report it, usually on Form W-2G. Failure to do so would require the sponsor to pay the 25% in taxes that the winners were liable for. If the winner does not provide his/her taxpayer ID (Social Security number), when the tournament ends then the sponsor must withhold 28% in federal taxes.
The new federal regulations are meant to clear up any confusion regarding federal withholding taxes on tournament earnings. Many sponsors and players were at odds about who was responsible for reporting the winnings, and how the taxes were to be paid.
With tournament sponsors facing a non-compliance penalty of paying 28% in taxes on your winnings, you can bet they are going to comply with the new rules. So, starting in March, if you score in a tournament, Uncle Sam will be making sure he will get his share of your good fortune.
Of course you can just play tournaments online and handle your own tax reporting. Click on one of the poker room banners here on Poker Works, they all offer more tournaments than even Uncle Sam could imagine!