I happened to be in NJ on 12/21 (I live in NY) and figured I would give the new online casinos a try. I opened an account at tropicanacasino.com and funded it with some money. They have a 'Slots' tab and a 'Casino' tab which contains standard table games. I pulled up Roulette (Casino tab) and commenced play: After a short while, I had made a decent amount of money on small bets and decided to take some larger bets. I made $1800 on the first spin, and the website asked for my SSN (which I gave). I continued to play, winning some and losing some -- fluctuating for about an hour; my highest net gain at any point was about $5,000. I left the game when I was still up for a total of $4,000 gain.
After the game, I saw that they issued me a Form W-2G for each time I 'won' more than $1200 -- which add up to gross winnings of ~36,000. My tax liability on that (federal + state) is about $15,000 -- $11,000 more than my winnings!!
At first glance, this made no logical sense. However, upon reviewing all the applicable tax laws I realize that there is a massive flaw in the online system: In a land-base casino, the tax rules work as follows:
-- Any gambling income is the responsibility of the winner to report on their tax return -- Gambling losses are only deductible as an itemized tax deduction -- Most winners are on the 'honor system' to report taxes -- W-2Gs are issued for any single jackpot that grosses >$1,200. However, this only applies to slots or bingo. (See
http://www.irs.gov/pub/irs-pdf/iw2g.pdf). It does not apply to table games unless the jackpot payout is >300:1. The reason for the table-game exemption is most likely because it is in their nature for players to constantly fluctuate with large amounts of money (unlike slots where a $1200 jackpot is almost surely at least a 300:1 payout and will take a very long time to lose in the same slot machine). -- Initially, the IRS considered each individual winning wager to be reportable income. However, courts have ruled and the IRS has demonstrated that players can report net wins per session. They can then itemize-deduct net session losses as well. For example, if someone sits at a blackjack table and plays with $500 but walks away with $1500, he reports a $1,000 gambling win, not each time he had a winning bet. A 'session' can be ambiguous as to its meaning but there is no question that the latter example constitutes a single session. However, with online casinos (at least Tropicana):
-- My experience above (and subsequent contact with Tropicana) has shown that they are classifying the online table games as slots (which is shown on the W-2Gs). They claim this is a DGE requirement since they run on a random number generator (so what?) -- Players are not made aware of this prior to playing -- on the website they are still calling these 'table games' As I do not itemize my deductions, I cannot offset the gain with the losses -- I owe $15,000 taxes on these phantom winnings! If I would itemize my deductions, I would lose out on my standard 12,500 deduction (which is equivalent to paying an extra $5-6K in taxes). Moreover, since the deduction is 'below-the-line', these phantom winnings raise my AGI to where I no-longer qualify for the child tax credit, and others. Furthermore, in NY State, itemized deductions have been limited (someone earning about 550k can only deduct half of their itemized deductions)!! One can easily foresee a situation where someone like me continues to play, fluctuating for hours in a single session, and having W2Gs that total >550,000 but have a net gain of $0! In which case, he will owe NY state taxes on $275,000 and go bankrupt!
To me, this makes little sense. I funded my account, played for less than an hour, and won 4k, owing more in taxes than my winnings -- who would ever want to play table games on an online casino! If people knew about this issue in advance they would stay far away.
NJ casino players have multiple options when it comes to playing online slots or even blackjack. There are now 20+ online casinos and poker rooms operating in New Jersey, all of which have been approved and licensed by the New Jersey Division of Gaming Enforcement (NJDGE).. Ultimately, where to play is your decision to make. Borgata Hotel Casino & Spa : Caesars Interactive Entertainment- Affiliate of Boardwalk Regency Corporation : Golden Nugget Atlantic City : Hard Rock Hotel & Casino: Ocean Resort Casino: Resorts Casino Hotel Atlantic City: Tropicana Casino Resort Atlantic City DGE was established in 1977 and its main objective is to protect the public interest by maintaining a legitimate and viable industry, free from the influences of organized crime, and assuring the honesty, good character and integrity of casino operators. Online gambling in New Jersey is solely regulated by DGE. They are responsible for the following operations: Making sure that the games the Only DGE licensed and regulated online casinos partnered with land-based casinos in Atlantic City are allowed to provide online casino games to players. Outside operators, i.e. online casinos registered in other states or countries are illegal in NJ. Licensed and regulated Internet gaming sites are approved to run online casino games 24 hours a day. The New Jersey State Legislature passed bill Online casino games in New Jersey are partnered with a physical casino in Atlantic City. They undergo the same regulation and examination as any game at a land-based casino. This ensures that a legal online casino can’t cheat you, but also other players can’t cheat the casino. This gives everyone an even chance to win. This list includes every casino that has been legally authorized by the NJ DGE to offer online wagering in the state. Betting is available only to persons physically located in New Jersey, whether a resident or a visitor. The casinos use location verification to establish that a player is located within the borders of NJ before permitting bets. The state of New Jersey's official Web site is the gateway to NJ information and services for residents, visitors, and businesses. Search : The Division of Gaming Enforcement's (DGE) mission is to protect the public interest by maintaining a legitimate and viable casino gaming industry, free from the influences of organized crime, and assuring the honesty, good character and integrity of
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