Withholding taxes on winnings to increase?

A new law went into effect in Massachusetts this year for any net gambling winnings of $600 or more will have a 5% withholding tax.  This is not only for exotic wagers it is for win, place and show wagers.  That means if you wagered $100 to win on a winning 6/1 shot at Suffolk Downs, the payout will result in a 5% withholding tax by the Massachusetts Department of Revenue.

How about if you hit an exotics wager that pays over $5,000?  Not only do you have the 26% takeout on exotics wagers at Suffolk Downs, you have the nationwide IRS withholding tax of 25% (for any winnings of 300/1 or more and pays $5,000 and up) and now you have the 5% withholding tax!

Horseplayers are smart, though, as they reportedly are wagering smaller tickets multiple times.  Instead of a straight $100 win bet, they place two $50 win bets.  This is similar to those playing the Superfecta as they will play a $.10 wager 10 times instead of playing a $1 wager hoping that the payoff is less than $5,000 on a $.10 payoff to avoid the IRS withholding tax.

I can remember there was a push to raise the IRS $5,000 withholding tax a few years ago to I believe $25,000 and haven’t heard from it since.  It was called The Pari-Mutuel Conformity and Equality Act of 2009 and it died in Congress that year.  All other forms of gambling are not subject to this withholding tax outside of pari-mutuel wagering and it may be a good idea to try to get this act back in the spotlight.

Back to the new Massachusetts 5% withholding tax, this is for all gambling in the state.  Other states will likely pick up on this and try to enact this as well.  It always seems that the government does not understand the meaning of churning money.  With higher takeout rates, there is less winning returns for bettors which leads to less betting.  Most all gamblers will churn back their winnings whether it is a slot machine or a horse race.  Each wager is already taxed and the government just can’t seem to grasp that concept of a lower takeout will actually work in their favor.

Takeout rates have really come into focus the last 10 years or so and pressure from horseplayers have helped lower the rates at a few tracks.  It looks like we are going to have to spread more awareness about this new Massachusetts withholding tax to try to eliminate it.  Maybe this will lead to another bill to repeal the IRS withholding tax from $5,000 to a higher amount.  Let’s not be silent on these issues and spread the word about these unfair taxes!

Below are a few horse racing websites that represent these type of issues:

1. American Horse Council: “Your unified voice in Washington”  www.horsecouncil.org

2. Horseplayers Association of North America (HANA): “Giving horseplayers a voice”  http://www.horseplayersassociation.org

3. National Thoroughbred Racing Association (NTRA): “Putting horseplayers on the hill” http://www.ntra.com/en/about-ntra/memberships/horseplayers-coalition/