Nine individuals came to Las Vegas on Monday and Tuesday to compete for the championship at the World Series of Poker (WSOP). Who would be the lucky winner? And who really got to keep the money?
Congratulations to Ryan Riess of Las Vegas. Mr. Riess, a professional poker player, beat out amateur player (and casino VIP host) Jay Farber and took down $8,359,531…before taxes. Mr. Riess, who went by the nickname “Riess the Beast,” kept holding good hand after good hand and came from behind to beat Mr. Farber. Riess’s final hand was AK (which dominated his opponent’s Q5). When neither player made a pair, Riess’s Ace-high won him the hand, and the tournament.
Gambling winnings are taxable in the United States for both amateurs and professionals. Mr. Riess doesn’t have to deal with state income tax (Nevada doesn’t have a state income tax). However, he does have to pay both federal income tax and federal self-employment tax. I estimate that Mr. Riess will owe $3,478,818 to the IRS (a 42% tax rate). Mr. Riess, who in interviews say he has trouble in the past saving money, will hopefully save up the $3.5 million he’ll owe in taxes.
Mr. Farber didn’t do badly by finishing second; he earned $5,174,357. As an amateur gambler he doesn’t have to worry about self-employment tax. Still, he’ll have to fork over an estimated $2,026,527 in tax (39%)
In third place was professional Amir Lehavot from Weston, Florida. Mr. Lehavot will have to be satisfied with the $3,727,823 he received (before taxes). A professional gambler, Mr. Lehavot (who is married) will lose an estimated $1,549,200 to federal taxes. Mr. Lehavot, a resident of Florida, does not have to worry about state tax on his winnings.
A note before I move on: Mr. Lehavot sold pieces of his action (backing). It’s likely that his true winnings will be significantly less than the amount shown above. Unless I know with certainty from public sources regarding backing, I ignore it for this analysis.
Finishing fourth was the man who I think was the biggest winner, Sylvain Loosli. Mr. Loosli, a Frenchman, relocated to London, England. I suspect taxes were definitely one of his motives with his move: The United Kingdom does not tax gambling winnings from its residents including professional gamblers (Mr. Loosli is a professional). The tax climate in France is anything but pleasant; Socialist President François Hollande has asked for a 75% marginal tax rate! While President Hollande has been rebuffed on that rate, the current maximum French marginal tax rate is 49%. That nice round zero in the United Kingdom sure sounds good in comparison to that! While Mr. Loosli finished fourth, his net winnings put him into third place. (The US-UK Tax Treaty exempts gambling income from UK residents from US tax.) His gross (and net) winnings were $2,792,533.
J.C. Tran, a professional poker player from Sacramento, finished fifth for $2,106,893. Mr. Tran led the final nine players going into final table action but had a disappointing day on Monday. Mr. Tran may also be disappointed when he learns how much of his income will go toward taxes; he faces the highest tax bite for an American at the final table (47.56%). Mr. Tran will end up with a very high 13.3% marginal tax rate on his California taxes; he must also pay federal tax (including the new 39.6% rate) and self-employment tax. Mr. Tran will owe an estimated $1,001,977 in tax.
The sixth place finisher was Marc-Etienee McLaughlin of Brossard, Quebec. Mr. McLaughlin will lose 30% of his winnings “off the top” to US tax withholding (though he can file a return to recover some of this based on his other US gambling losses). Additionally, he probably owes Canadian and provincial tax on his winnings.
The tax regime in Canada for gamblers is not as certain as it is in the US. The Quebec tax authorities are more aggressive than other provinces in collecting income tax from professional gamblers. Additionally, the rulings of Canadian courts on the taxation of gambling have not been consistent. For example, a professional gambler in British Columbia was recently found not to owe Canadian income tax on his gambling winnings. (That ruling may be appealed, though.)
Still, given that Mr. McLaughlin lives in Quebec I think he’ll end up having to pay tax on his winnings. He should get a full tax credit for the tax withheld by the US. Unfortunately, Quebec has the highest marginal tax rate in Canada for income–50%. Overall, Mr. McLaughlin will likely owe over 49.5% on tax ($792,935 of his $1,601,024 of winnings).
Michael Brummelhuis of Amsterdam finished seventh. The US-Netherlands Tax Treaty exempts his income from US taxation. The Netherlands taxes gambling winnings at a flat 29%; thus, Mr. Brummelhuis will owe $355,353 on his winnings of $1,225,356. Note that while Mr. Brummelhuis finished in seventh place, on an after-tax basis he finished in sixth.
Finishing eighth was David Benefield of New York City. Mr. Benefield, a student at Columbia University, is a former professional poker player. While he won’t owe self-employment tax, Mr. Benefield does have to pay both state and city income tax on his winnings. Of the $944,650 he won, I estimate he’ll owe $437,201 in tax (46%).
Mark Newhouse of Los Angeles finished in ninth place. A professional poker player, Mr. Newhouse did not win anything additional to the $733,224 he took home in July. I estimate he’ll lose just over 44% to tax ($322,879)
Here’s a table summarizing the tax bite:
| Amount won at Final Table | $25,932,167 |
| Tax to IRS | $8,626,311 |
| Tax to Belastingdienst (Netherlands) | $355,353 |
| Tax to Franchise Tax Board (California) | $321,611 |
| Tax to Canada Revenue Agency | $312,628 |
| Tax to New York Dept. of Taxation & Finance | $78,394 |
| Total Tax | $9,642,011 |
That’s a total tax bite of 37.18%.
Here’s a second table with the winners sorted by their estimated take-home winnings:
| Winner | Before-Tax Prize | After-Tax Prize |
| 1. Ryan Riess | $8,359,531 | $4,880,713 |
| 2. Jay Farber | $5,174,357 | $3,147,830 |
| 4. Sylvain Loosli | $2,792,533 | $2,792,533 |
| 3. Amir Lehavot | $3,727,823 | $2,178,623 |
| 5. J.C. Tran | $2,106,893 | $1,104,916 |
| 7. Michael Brummelhuis | $1,225,356 | $870,003 |
| 6. Marc-Etienee McLaughlin | $1,601,024 | $808,089 |
| 8. David Benefield | $944,650 | $507,449 |
| 9. Mark Newhouse | $733,224 | $410,345 |
| Totals | $25,932,167 | $16,290,156 |
Once again the big winner was not the man who came in first; rather, it was the Internal Revenue Service. The tax agency has been rocked by scandals this past summer but it did very well at the Rio. The IRS will collect $8,626,311 for the United States Treasury. That’s more than the pre-tax first place prize of $8,359,531, over $3 million more than the after-tax first place prize, and more than the combined first and second place after-tax amounts. That’s because we all know that the house–the IRS–always wins.
Tags: WSOP
This is all very interesting, great analysis. I’m just a tax noob, so bear with me. Since Loosli is really a French citizen just living in London, wouldn’t his nationality determine which country he owes tax to? So he would owe to France instead of the UK? Or both? Seems like most of the poker pros would be moving to England if all you had to do was live there and not be a citizen.
I heard if you’re a US expat living in Thailand, for example, you still owe US taxes every year. Not sure if you owe Thailand taxes if you didn’t work there (but had investment or pension income from the US).
Another question – since Benefield is just a part-time student at Columbia in NYC and his real hometown is Arlington, TX, wouldn’t he be exempt from state income tax since TX doesn’t have income tax, and also exempt from NYC city tax since that’s not really his permanent residence?
There’s a European Union agreement that allows a EU citizen to move from one country to another and be subject to the taxes of the country of his residence. Mr. Loosli, assuming he’s been a UK resident for all of 2013, will be subject to UK tax law rather than French tax law.
A US citizen owes US income tax on his worldwide income, whether he lives in Thailand or Tampa.
The WSOP website states that Mr. Benefield now resides in New York City. Assuming he rents an apartment in New York, he would likely be a statutory resident of New York (and New York City) under New York tax law. It’s possible he’s not, and he’s only in New York for a short period of time each year. How this will be handled is between Mr. Benefield and his tax professional.
Thanks for your reply. I was wondering, since Lehavot is a dual citizen with Israel, in what circumstance would he owe Israel tax?
Also, just curious, for a U.S. retiree who lived in Thailand but didn’t work in Thailand, would they owe both U.S. and Thailand taxes on their investment and pension income from the U.S.?
I can’t answer regarding Israeli taxes–I’d have to research this.
There is no tax treaty between the US and Thailand. US citizens are taxed on their worldwide income unless there’s a tax treaty overriding US law. A US retiree living in Thailand would owe US tax on his investment income and on his non-tax-exempt pension income. I have no idea what the tax treatment is in Thailand. I can say that if the retiree were subject to tax on the same income in both countries, he can tax a tax credit on his US tax return for the double-taxed income.
I was wondering which case you were referring to from BC? Is it the Radonjic case?
Yes, Radonjic v. Canada Revenue Agency. I’m going to have a post on Canadian (gambling) tax in a week or so.
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Great article!. I really hate how much governments tax the winners seems unfairly high. Anyway, quick question. I am a citizen of USA. My grand parents were born in Italy. I can apply for a dual citizenship, which means I can be both Italian and American at same time. What are the tax laws from italy regarding gambling winnings and could I claim that instead of Us on any winnings? just curious
I’d have to research Italian tax law vis-a-vis online gambling. Unless you live in Italy (in which case the US-Italy Tax Treaty would come into play), you would owe US tax on your gambling winnings regardless of you being a dual citizen of Italy.
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If the winner of the event was a Brazilian? How much tax he would pay?
30% would be withheld to the IRS. I’d have to look up Brazilian law on gambling to see if he’d be liable for more tax.
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Are poker players from india allowed to participate in wsop or ept events, of yes the how much tax will be charged on any winnings.
Also, apart from the main table how much tax are the other players charged on their winnings eg a player winning 100k usd
Thanks
The US and India do not have a Tax Treaty covering gambling. Thus, on any tournament winnings of $5,000 or more 30% of the net win will be withheld by the casino and remitted to the IRS. On a $100,000 net win, that would be $30,000.
Great article, but welcome to the world of being grown up. Whether a business owner or slacker, you will and should be taxed on your personnel income. Personally speaking, sharing 25-30% of gambling income is more palatable than sharing money that I earned running a company that creates jobs and GDP.