Federal and State of Michigan Tax Withholding Requirements
Reportable Gambling Winnings
The Internal Revenue Service (IRS) requires certain gambling winnings to be reported on Form W-2G if:
1. The winnings (not reduced by the wager) are $1,200 or more from a bingo game or slot machine.
2. The winnings (reduced by the wager) are $1,500 or more from a Keno game.
3. The winnings (reduced by wager or buy-in) are more than $5,000 from a poker tournament.
4. The winnings (except winnings from bingo, slot machines, keno and poker tournaments) reduced, at the option of the payer, by the wager are:
a. $600 or more, and
b. At least 300 times the amount of the wager, or
5. The winnings are subject to federal income tax withholding (either regular gambling withholding or backup withholding).
Withholding for Federal Income Tax
There are two types of withholding on gambling winnings:
1. Regular gambling withholding requires payer to withhold 25% of gambling winnings for federal income tax if prize value is greater than $5,000. Regular gambling withholding is figured on the total amount of gross proceeds (the amount of winnings minus the amount wagered), not merely on the amount in excess of $5,000.
a. Noncash payments must be taken into account at its fair market value (FMV) for purposes of reporting and withholding.
2. Backup withholding is required when winner does not furnish a correct taxpayer identification number (i.e., driver's license, social security card, or voter registration) and is withheld at a rate of 28%. Backup withholding is also figured on the total amount of the winnings reduced, at the option of the payer, by the amount wagered. This means the total cash or noncash prize, not just the payments in excess of $600, $1,200, $1,500, or $5,000, is subject to backup withholding at 28%.
Withholding for Michigan Income Tax
Withholding is required for Michigan income tax whenever regular (not backup) federal withholding is required. The withholding requirement applies to all gambling including casinos, race tracks and organizations conducting charitable gambling.
Michigan requires casinos and race tracks to withhold on the gambling winnings of non-residents once the winnings are reported on W-2G. Therefore, non-residents who gamble at casinos or race tracks are subject to Michigan withholding at a lower winnings threshold because federal reporting is triggered at a lower winnings level than federal withholding. Michigan does not require backup withholding.
The Michigan income tax withholding rate is 4.35% through September 30, 2012 and beginning October 1, 2012, the rate changes to 4.25%. All gambling winnings, including casino, race track and charitable gambling are taxable and must be claimed on a Michigan return even if the winnings are below the reportable level or below the withholding level.
Form W2-G, Statement for Recipients of Certain Gambling Winnings is used to report Reportable Gambling Winnings and the Regular or Backup federal income tax withheld. The payer of gambling winnings is required to file Forms W2-G with the IRS by the last day of February of the year following the year of prize award. Form 1096, "Annual Summary, and Transmittal of U.S. Information Return," is used to transmit the Forms W2-G to IRS. Forms are only filed with Michigan Department of Treasury when withholding is required.
Reporting the Federal Tax
Form 945, "Annual Return of Withheld Federal Income Tax," is used to report and pay the monies withheld to the IRS. Form 945 is an annual return and is due January 31 of the year following the year in which the taxes are withheld. Be sure to mark the Form 945 checkbox on Form 8109, Federal Tax Deposit coupon.
The federal employer identification number (FEIN or EIN) of the organization conducting the raffle is required to be listed on the Forms W2-G, 1096, and 945. If you have not secured an EIN, you may apply for one on the Form SS-4, "Application for Employer Identification Number," available from the IRS.
Reporting the State of Michigan Tax
Organizations that collect Michigan income tax withholding on gambling winnings will need to register with Department of Treasury using Form 518, "Registration for Michigan Taxes", submit the withholding to the Department of Treasury, as directed by the "Sales, Use, and Withholding Tax forms and Instructions, form 78, and file an annual return for Sales, Use and Withholding Taxes on form 165. Copies of any federal Form W2-G that report Michigan withholding should be included along with the Michigan form 165.
Both the IRS and Michigan Department of Treasury have requested that Bureau employees not attempt to answer tax questions or provide tax advice. Therefore, any questions regarding tax withholding or reporting requirements must be directed to the appropriate agency using the contact information below.
Internal Revenue Service (IRS)
For forms and information on this subject, see IRS Publication 3079 available online at www.irs.gov or by calling, toll free 1-800-829-1040.
State of Michigan Department of Treasury
Information to register for Michigan income tax withholding and obtain forms is available at www.michigan.gov/treasury or by calling the customer service center at (517) 636-6925.