Federal Income Tax Withholding: Bingo Prizes

With the advent of the Michigan Progressive Bingo Game, bingo prizes have the potential to exceed $1,200.  It is imperative that organizations conducting bingos be aware of the federal income tax withholding requirements.  The following was reviewed by the IRS on November 23, 2004.

IDENTIFICATION: The winner of a single bingo prize of $1,200 or more must provide the organization with proper identification.  Two types of identification (e.g. driver license, social security card, voter registration card, etc.) should be furnished by the winner to verify his or her name, address, and social security number.

W-2G: If an organization awards a single bingo prize of $1,200 or more, the organization must file Form W-2G.

WITHHOLDING: If an organization awards a single bingo prize of $1,200 or greater and the prize winner fails to provide proper identification, the organization must withhold 28% of the prize.

EXAMPLE: Organization XYZ paid a progressive jackpot bingo prize of $1,300.  The winner would only give his name as J. Doe and did not provide proper identification.  Organization XYZ should collect withholding of $364 ($1,300 x 28%), pay the winner $936 ($1,300 - $364), and file Form W-2G.  If the winner had provided XYZ with proper identification (including social security number), no withholding would be required; however, the organization would still be required to file Form W-2G.

LIABILITY: The organization is liable for paying the applicable backup withholding to the IRS, regardless of whether or not it is collected from the prize winner.  The best time to collect backup withholding is before the prize is paid!  Organizations must report withholdings on Form 945 by January 31 of the following year.

Employees of the Michigan Lottery are not agents of the IRS nor are they tax consultants.  Each organization should contact a licensed professional or the IRS for more information.  To contact the IRS Exempt Organization Unit, call 877-829-5500.  To receive a copy of Publication 3079 or other tax publications or forms, call 1-800-829-3676 (FORM) or go to the IRS website at www.irs.gov.