Casinos must issue -- then forward to the IRS -- W-2Gs for a win of $1,200 or more on slots, and $1,500 or more at keno, on a single hand. This means a jackpot, rather than an accumulation of credits, even if the total exceeds the reporting threshold and it must be hand-paid by an attendant.
For example, if you hit a royal flush on the $1 video poker machine for $4,000, you'll get a W-2G. If you hit a straight flush for $1,000 and a handful of full houses, flushes, and straights for another $250, then cash out your credits for $1,250, you won't get a W-2G, even if the machine locks up and a hand-pay is required. (Note that some slot floorpeople don't know the one-hand rule and will try to issue you a W-2G for a hand-pay on accumulated credits; stories circulate occasionally about slot and VP players having to explain this to novice casino employees.)
On high-denomination machines, such as $100 video poker, every time you hit three-of-a-kind, the machine locks up and you have to wait for a W-2G. (On a $100 machine with a five-coin max bet, three-of-a-kind pays $1,500.) VP high rollers -- and their accountants -- have become frustrated with the low W-2G threshold and argue that it should be raised substantially in order to avoid situations where W-2Gs have to be issued every couple of minutes on high-denomination machines. But for now, that's the way it is.
Gambling and taxes is a complex, ambiguous, and therefore danger-fraught subject. Luckily, Jean Scott and Marissa Chien (who's Jean Scott's tax preparer) have written a special report on it (from where the above information is taken): Tax Help for the Frugal Gambler. It's available from Huntington Press for $25; call 800/244-2224 or go to www.gratstuff4gamblers.com.
