On November 14, 2013, Rep. Jim McDermott introduced a new bill entitled the “Internet Gambling Regulation and Tax Enforcement Act of 2013 (H.R.3491)”. If passed, this bill will amend the Internal Revenue Code of 1986 and regulate taxes on internet gambling, especially the highly trending online poker games.
The Internet Gambling Regulation and Tax Enforcement Act of 2013 is not a standalone attempt at legalization. It is a follow-up from the Internet Gambling Regulation, Consumer Protection, and Enforcement Act (H.R. 1174 (112th)), which was introduced, but not enacted, in 2011. If the Internet Gambling Regulation and Tax Enforcement Act of 2013 is passed, internet gambling activity will be strictly regulated.
There are many online poker players and/or operators who make a significant amount of income every year through online winnings. It is important for all online poker players and/or operators to understand the ever-changing tax landscape and be aware of all applicable taxes. AG Tax professionals have prepared a brief overview of the Internet Gambling Regulation and Tax Enforcement Act of 2013 (H.R.3491):
The Proposed Bill on Taxation of Online Poker Winnings
The proposed bill offers a sensible approach to collecting new revenue for federal and state budgets. Rather than using the “Gross Gaming Revenue” method for calculating tax, a “Deposit Tax” method has been proposed. The deposit tax method requires that a 12% deposit tax is imposed on licensed operators, not players. All collected tax money is shared by the federal government and the states, with the federal government collecting 4% of the tax, and qualified states (as well as the tribes that participate in the federal regime) receiving 8% of tax. For all unlicensed operators, a 50% tax will be imposed. The online gambling tax allocated to states and tribes depends on the location where the user plays online poker and makes a deposit. At this time, the only states affected by the proposed bill are Nevada, New Jersey, and Delaware .
The internet gambling operators must report the following information (pertaining to the betters) to the treasury:
•Names
•Addresses
•Tax IDs
•Gross winnings
•Gross wagers
•Gross losses
•Amounts deposited
•Amounts withdrawn
In addition to this, the opening and year-end account balances from every year must be reported to the authorities .
Some casinos will provide winners with a W-2G form to report winnings. However, if a casino fails to provide the W-2G form, it is the gambling players responsibility to report and pay taxes on all net gambling income.
Please note that the above content is an extract from the proposed Internet Gambling Regulation and Tax Enforcement Act of 2013 (H.R.3491) and as of December 17, 2013, the Internet Gambling Regulation and Tax Enforcement Act of 2013 has not yet been passed into law.
AG Tax strongly recommends that all online gambling players and/or operators consult with a professional U.S. tax advisor regarding the tax consequences of income gained through online gambling.
AG Tax LLP can help
If you have any tax-related queries related to taxation of online gambling winnings, or need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
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