New Tax Rules Benefitting U.S. Bettors Take Effect Today

Image credit: James Boyes

A new tax rule adopted by the IRS regarding its treatment of wagering activity will have a positive impact on horse racing bettors in the US beginning today. Yesterday, the IRS adopted a new rule in which all wagers placed into a single parimutuel pool and represented on a single ticket may be aggregated and treated as a single bet for withholding and reporting purposes.

The impact on gamblers will be immediate as TwinSpires and Xpressbet both sent out e-mails earlier this week explaining to players that both sites have adopted the new regulations, which will allow horseplayers to keep more of their own money.

The previous reporting and automatic withholding regulations remain the same under these new rules. That is, winnings of 300-1 that pay at least $600 must still be reported to the IRS and winnings of 300-1 that pay at least $5,000 are still subject to automatic withholding rules.

However, the manner in which those thresholds are met will be different under the new rules. Whereas before the base bet amount (i.e. $2) was considered the original stake, the entire bet amount will now be considered the original stake.

What This Means for Gamblers

The new rules now count the entire amount of money you bet into a single parimutuel pool as your original wagering amount for tax purposes. Before, only the exact amount of money that was wagered on the winning result was considered the original wager.

This is an important distinction that will ultimately result in horseplayers keeping more of their money, betting sites seeing an increase in handle and more money going back to the sport of horse racing.

A news piece published on TwinSpires.com best explains how this impact will affect players:

“Let’s say you box five horses in a $1 superfecta—a bet that costs $120. If you win and the bet returns $5,005 you will not receive a W2G or be subject to automatic withholding because 5,005 is not 300x more than 120. Under the old regulations, you’d have received a W2G and had taxes withheld from your account automatically because $5,005 is more than 300x the $1 superfecta that hit.”

The National Thoroughbred Racing Association (NTRA) provides a second example from their own press release:

“For example, the amount wagered by a Pick Six player who hits with one of 140 combinations on a $1-minimum wager now will be $140, which is the total amount bet into the Pick Six pool. This more accurate calculation will remove the significant reporting and withholding obligations on horseplayers and the unnecessary paperwork for the IRS that was a result of the prior rule that used only the $1 bet on the single winning combination as the amount wagered”

TwinSpires President Ted Gay was quite pleased with the news. He called the rules change “a very big win for horseplayers and for pari-mutuel wagering on horse racing.” He also stated that the NTRA has estimated that these changes could increase betting handle on US races by as much as $1 billion per year and “improve the economics of the sport at every level.”

The NTRA had been pushing for these changes for several years now on the basis that the old rules were outdated and unfair. As the popularity of exotic wagers grew, more and more winning tickets were meeting the minimum reporting and withholding thresholds. Compliance was becoming an increasingly burdensome and costly part of doing business.

These new rules will make life a little easier for gamblers and operators alike. Horse racing bettors will be able to keep more of their money and operators will see a significant reduction in the incidence of winning tickets that meet reporting and withholding thresholds. This is a win for everyone.