What's New for 2002?
Regular gambling withholding.
Recent legislation reduced the regular gambling withholding rate.
The regular gambling withholding rate will be 27% (36.98% for certain
noncash payments) for reportable payments made in 2002 and 2003.
Backup withholding.
Recent legislation also reduced the backup withholding rate. The
backup withholding rate will be 30% for reportable payments made in
2002 and 2003.
An Item To Note
In addition to these specific instructions, you should also use the
2002 General Instructions for Forms 1099, 1098, 5498, and W-2G.
Those general instructions include information about:
- Backup withholding
- Magnetic media and electronic reporting requirements
- Penalties
- When and where to file
- Taxpayer identification numbers
- Statements to recipients
- Corrected and void returns
- Other general topics
You can get the general instructions from the IRS Web Site at
www.irs.gov or by calling 1-800-TAX-FORM (1-800-829-3676).
Specific Instructions for Form W-2G
File Form W-2G, Certain Gambling Winnings, to report
gambling winnings and any Federal income tax withheld on those
winnings. The requirements for reporting and withholding depend on the
type of gambling, the amount of the gambling winnings, and generally
the ratio of the winnings to the wager.
The types of gambling are discussed in these instructions under the
following three headings:
- 1 - Horse Racing, Dog Racing, Jai Alai, and Other
Wagering Transactions Not Discussed Later
- 2 - Sweepstakes, Wagering Pools, and
Lotteries
- 3 - Bingo, Keno, and Slot Machines
Tax-Exempt Organizations
A tax-exempt organization conducting gaming activities may be
required to withhold income tax and report on Form W-2G. See Pub.
3079, Gaming Publication for Tax-Exempt Organizations.
Reportable Gambling Winnings
Generally, gambling winnings are reportable if the amount paid
reduced, at the option of the payer, by the wager is (a)
$600 or more and (b) at least 300 times the amount of the
wager. However, these requirements do not apply to winnings from
bingo, keno, and slot machines. Gambling winnings for these games are
reportable if:
- The winnings (reduced by the wager) are $1,500 or more from
a keno game.
- The winnings (not reduced by the wager) are $1,200 or more
from a bingo game or slot machine.
If you pay reportable gambling winnings, you must file Form W-2G
with the IRS and provide a statement to the winner (Copies B and C of
Form W-2G).
Withholding
There are two types of withholding on gambling
winnings - regular gambling withholding at 27% (36.98% for certain
noncash payments) and backup withholding at 30%. If a payment is
already subject to regular gambling withholding, it is not subject to
backup withholding.
Regular Gambling Withholding
You may be required to withhold 27% of gambling winnings for
Federal income tax. This is referred to as regular gambling
withholding. Withhold at the 27% rate if the winnings are more than
$5,000 and are from:
- Sweepstakes,
- Wagering Pools,
- Lotteries, and
- Other wagering transactions if the winnings are at least 300
times the amount wagered.
Do not withhold on winnings from bingo, keno, or slot machines or
any other wagering transaction if the winnings are $5,000 or less.
However, see Backup Withholding below.
Regular gambling withholding applies to the total amount of gross
proceeds (the amount of winnings less the amount wagered), not merely
to the amount in excess of $5,000.
Report the amount you withheld in box 2 of Form W-2G. Also file
Form 945, Annual Return of Withheld Federal Income Tax, to
report all your gambling withholding.
Noncash payments.
A noncash payment, such as a car, must be taken into account at its
fair market value (FMV) for purposes of reporting and withholding. If
the FMV exceeds $5,000, after deducting the price of the wager, the
winnings are subject to 27% regular gambling withholding. The tax you
must withhold is computed and paid under either of the following two
methods:
- The winner pays the withholding tax to the payer.
In this case, the withholding is 27% of the FMV of the noncash payment
minus the amount of the wager.
- The payer pays the withholding tax. In this case,
the withholding is 36.98% of the FMV of the noncash payment minus the
amount of the wager.
If you use method 2, enter the sum of the noncash
payment and the withholding tax in box 1 of Form W-2G and the
withholding tax paid by the payer in box 2.
Backup Withholding
You may be required to withhold 30% of gambling winnings (including
winnings from bingo, keno, and slot machines) for Federal income tax.
This is referred to as backup withholding. You should backup withhold
at the 30% rate if:
- The winner does not furnish a correct taxpayer
identification number (TIN) and
- 27% has not been withheld or the winnings are from bingo,
keno, or slot machines.
Backup withholding applies to the total amount of the winnings
reduced, at the option of the payer, by the amount wagered. This means
the total amount, not just the payments in excess of $600, $1,200, or
$1,500, is subject to backup withholding at 30%.
Report the amount you withheld in box 2 of Form W-2G. Also file
Form 945 to report all backup withholding. You may use Form
W-9, Request for Taxpayer Identification Number and
Certification, to request the TIN of the recipient.
See the instructions below for each type of gambling for detailed
rules on backup withholding.
Foreign Persons
Payments of gambling winnings to a nonresident alien individual or
a foreign entity are not subject to reporting or withholding on Form
W-2G. Generally, gambling winnings paid to a foreign person are
subject to 30% withholding under sections 1441(a) and 1442(a) and are
reportable on Form 1042, Annual Withholding Tax Return for
U.S. Source Income of Foreign Persons, and Form 1042-S,
Foreign Person's U.S. Source Income Subject to Withholding. Winnings
of a nonresident alien from blackjack, baccarat, craps, roulette, or
big-6 wheel are not subject to withholding or reporting. See Pub.
515, Withholding of Tax on Nonresident Aliens and Foreign
Entities.
State Tax Information
If state income tax withholding is required on gambling winnings in
your state, you may want to complete boxes 13 and 14 on Form W-2G.
Copy 1 of the form may be used to provide information to the state,
and Copy 2 may be used as the winner's copy for use in filing a state
income tax return. A state identification number is assigned by each
individual state.
Form 5754
If the person receiving the winnings is not the actual winner, or
is a member of a group of winners, see Specific Instructions for
Form 5754 on page W-4.
Statements to Winners
If you are required to file Form W-2G, you must also provide a
statement to the winner. For information about the requirement to
furnish a statement to the winner, see part H in the
2002 General Instructions for Forms 1099, 1098, 5498, and
W-2G. You may furnish Copies B and C of Form W-2G.
1 - Horse Racing, Dog Racing, Jai Alai, and Other Wagering Transactions Not Discussed Later
File Form W-2G for every person to whom you pay $600 or more in
gambling winnings if such winnings are at least 300 times the amount
of the wager. If the person presenting the ticket for payment is the
sole owner of the ticket, complete Form W-2G showing the name,
address, and TIN of the winner. If regular gambling withholding is
required, the winner must sign Form W-2G, under penalties of perjury,
stating that he or she is the sole owner and that the information
listed on the form is correct.
Withholding
You must withhold Federal income tax, at the rate of 27% (regular
gambling withholding), from the amount of winnings less the amount
wagered. Do this if the winnings less the wager exceed $5,000 and if
the winnings are at least 300 times the amount of the wager.
If the winner of reportable gambling winnings does not provide a
TIN, you must backup withhold at the rate of 30% on any such winnings
that are not subject to 27% regular gambling withholding. That is,
backup withholding applies if the winnings are at least $600 but not
more than $5,000 and are at least 300 times the wager. Figure the 30%
backup withholding on the amount of the winnings reduced, at the
option of the payer, by the amount wagered.
Multiple Wagers
For multiple wagers sold on one ticket, such as the $12 box bet on
a Big Triple or Trifecta, the wager is considered as six $2 bets and
not one $12 bet for purposes of computing the amount to be reported or
withheld. Winnings on a $12 box bet must be reported if they are $600
or more, and Federal income tax must be withheld if the proceeds total
more than $5,000 or, if the proceeds do not exceed $5,000, if the
recipient fails to provide a TIN.
Identical Wagers
Winnings from identical wagers (e.g., two $2 bets on a particular
horse to win the same race) are added together for purposes of the
reporting and withholding requirements. Also, winnings from identical
wagers that are not part of the payment for which the Form W-2G is
being prepared are added together for purposes of withholding to
determine if the total amount of proceeds from identical wagers is
more than $5,000.
Box 1
Enter payments of $600 or more if the payment is at least 300 times
the amount of the wager.
Box 2
Enter any Federal income tax withheld, whether 27% regular gambling
withholding or 30% backup withholding.
Box 3
Enter the type of wager if other than a regular race bet, for
example, Daily Double or Big Triple.
Box 4
Enter the date of the winning event. This is not the date the money
was paid if it was paid after the date of the race (or game).
Box 5
Not applicable.
Box 6
Enter the race (or game) applicable to the winning ticket.
Box 7
Enter the amount of additional winnings from identical wagers.
Box 8 or 10
Enter the cashier and/or window number making the winning payment.
Boxes 11 and 12
Enter the identification numbers of the person receiving the
winnings. Identification from a driver's license, social security
card, or voter registration may be furnished by the person receiving
the winnings.
Box 13 (optional)
Enter the abbreviated name of the state and your state
identification number.
Box 14 (optional)
Enter the amount of state income tax withheld.
2 - Sweepstakes, Wagering Pools, and Lotteries
File Form W-2G for each person to whom you pay $600 or more in
gambling winnings from a sweepstakes, wagering pool, or lottery
(including a state-conducted lottery) if the winnings are at least 300
times the amount of the wager. The wager must be subtracted from the
total winnings to determine whether withholding is required and, at
the option of the payer, to determine whether reporting is required.
The wager must be subtracted at the time of the first payment.
The requirements in this section apply to church raffles, charity
drawings, etc. In the case of one wager for multiple raffle tickets,
such as five for $1, the wager is considered as $.20 for each ticket.
Withholding
You must withhold Federal income tax, at the rate of 27% (regular
gambling withholding), from the amount of winnings less the amount
wagered if the winnings less the wager exceed $5,000. If the winner of
reportable gambling winnings does not provide a TIN, you must backup
withhold at the rate of 30% on any such winnings that are not subject
to 27% regular gambling withholding. That is, backup withholding
applies if the winnings are at least $600 but not more than $5,000 and
are at least 300 times the wager. Figure the 30% backup withholding on
the amount of the winnings reduced, at the option of the payer, by the
amount wagered.
Installment payments of $5,000 or less are subject to 27% regular
gambling withholding if the total proceeds from the wager will exceed
$5,000.
If payments are to be made for the life of a person (or for the
lives of more than one person), and it is actuarially determined that
the total proceeds from the wager are expected to exceed $5,000, such
payments are subject to 27% regular gambling withholding. When a third
party makes the payments, for example, an insurance company handling
the winnings as an annuity, that third party must withhold.
When Paid
A payment of winnings is considered made when it is paid, either
actually or constructively, to the winner. Winnings are constructively
paid when they are credited to, or set apart for, that person without
any substantial limitation or restriction on the time, manner, or
condition of payment. However, if not later than 60 days after the
winner becomes entitled to the prize, the winner chooses the option of
a lump sum or an annuity payable over at least 10 years, the payment
of winnings is considered made when actually paid. If the winner
chooses an annuity, file Form W-2G each year to report the annuity
paid during that year.
Box 1
Enter payments of $600 or more if the payment is at least 300 times
the amount of the wager.
Box 2
Enter any Federal income tax withheld, whether 27% regular gambling
withholding or 30% backup withholding.
Box 3
Enter the type of wager (such as raffle or 50-50 drawing) or the
name of the lottery (such as Instant, Big 50, Baker's Dozen, or
Powerball) and the price of the wager ($.50, $1, etc.).
Box 4
Enter the date of the winning transaction, such as the date of the
drawing of the winning number. This might not be the date the winnings
are paid.
Box 5
For a state lottery, enter the ticket number or other identifying
number.
Boxes 6 Through 8 and 10
Not applicable.
Boxes 11 and 12
For other than state lotteries, enter the identification numbers of
the person receiving the winnings. Identification from a driver's
license, social security card, or voter registration may be furnished
by the person receiving the winnings.
Box 13 (optional)
Enter the abbreviated name of the state and your state
identification number.
Box 14 (optional)
Enter the amount of state income tax withheld.
3 - Bingo, Keno, and Slot Machines
File Form W-2G for every person to whom you pay $1,200 or more in
gambling winnings from bingo or slot machines, or $1,500 or more from
keno after the price of the wager for the winning keno game is
deducted. If the winnings are not paid in cash, the FMV of the item
won is considered the amount of the winnings. Total all winnings from
each bingo or keno game. Winnings and losses from other wagering
transactions are not to be taken into account in arriving at the
$1,200 or $1,500 figure.
Withholding
Regular gambling withholding (27%) does not
apply to winnings from bingo, keno, or slot machines. However, if the
recipient of reportable gambling winnings from bingo, keno, or slot
machines does not provide a TIN, you must backup withhold at the rate
of 30%. That is, if the winnings are at least $1,200 from bingo or
slot machines or $1,500 from keno, 30% backup withholding applies to
the amount of the winnings reduced, at the option of the payer, by the
amount wagered.
Box 1
Enter payments of $1,200 or more from bingo or slot machines or
payments of $1,500 or more from keno.
Box 2
Enter any 30% backup withholding.
Box 3
Enter the type of wager (i.e., bingo, keno, or slot machines) and
the amount of the wager.
Box 4
Enter the date of the winning transaction.
Box 5
Enter the ticket number, card number (and color, if applicable),
machine serial number, or any other information that will help
identify the winning transaction.
Boxes 6 and 7
Not applicable.
Box 8
Enter the initials of the person paying the winnings.
Box 10
Enter the location of the person paying the winnings, if
applicable.
Boxes 11 and 12
Enter the identification numbers of the person receiving the
winnings. Identification from a driver's license, social security
card, or voter registration may be furnished by the person receiving
the winnings.
Box 13 (optional)
Enter the abbreviated name of the state and your state
identification number.
Box 14 (optional)
Enter the amount of state income tax withheld.
Specific Instructions for Form 5754
Use Form 5754, Statement by Person(s) Receiving Gambling
Winnings, only to prepare Form W-2G when the person receiving gambling
winnings subject to reporting or withholding is not the actual winner
or is a member of a group of two or more winners on the same winning
ticket. The payer is required to file Forms W-2G based on Form 5754.
The person receiving the winnings must furnish all the information
required by Form 5754. However, a recipient of winnings from a
state-conducted lottery need not provide identification other than his
or her taxpayer identification number (TIN).
Part I lists the identification of the person to whom the winnings
are paid, and Part II lists the actual winners, their respective
shares of the winnings, and any additional winnings from identical
wagers.
In Part II, the person receiving the winnings must provide the
name, address, TIN, respective share of the winnings, and additional
winnings from identical wagers for each of the winners. In addition,
if regular gambling withholding is required, the form must be signed,
under penalties of perjury, and dated by the person receiving the
winnings.
The form must be returned to the payer for preparation of Form W-2G
for each of the persons listed as winners. Forms W-2G may be issued
immediately or by January 31 following the year of the payment.
Do not send Form 5754 to the IRS. Keep it for your
records.
Withholding and Forms W-2G for Multiple Winners
If more than one person shares in the winnings from a single wager,
the total amount of the winnings (less the amount wagered) will
determine the amount of the proceeds for purposes of reporting and
withholding. Do not allocate winnings to each winner before
determining whether the withholding or reporting thresholds were
reached.
For example, E purchases a sweepstakes ticket for $1 on behalf of
himself and S, who contributes an equal amount of the ticket price and
who will share equally in any winnings. The ticket wins $5,002.
Because the winnings ($5,002 - $1 = $5,001) are more than $5,000, you
must withhold 27% of $5,001. You must prepare a separate Form W-2G
for E and for S using the information furnished to you on Form 5754.
First
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