Taxable Talk

Yesterday afternoon, the 2023 Main Event of the World Series of Poker concluded. A record 10,043 entrants ponied up the $10,000 buy-in to the event leading to a prize pool of $93,399,900 (the $7,030,100 difference is the funds kept by Caesars for running the event). We focus on the nine-handed final table, but 1,507 received winnings from the prize pool; a minimum cash was worth $15,000. The winner received a whopping $12.1 million; however, did he get to keep it all?

One important note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk (and/or “swap” action with other entrants). It is quite likely that most (if not all) of the winners were backed (or had swaps) and will, in the end, only enjoy a portion of their winnings. I ignore backing and swaps in this analysis (because the full details are rarely publicized). Now, on to the winners.

Congratulations to Daniel Weinman, a professional poker player from Atlanta. On the final hand, Steven Jones, the runner-up, raised and Mr. Weinman called. On the flop of J-5-2, Mr. Weinman checked, Mr. Jones made a continuation bet, and Mr. Weinman raised with Mr. Jones calling. The turn came a 4, Mr. Weinman bet again, Mr. Jones raised all-in (after a four minute deliberation), and Mr. Weinman called in less than 30 seconds. Both players had a pair of Jacks (Mr. Weinman held K-J while Mr. Jones held J-8). Mr. Jones needed an eight on the river to win the hand, but the river was an Ace giving Mr. Weinman the championship. First place was a cool $12.1 Million. Mr. Weinman owes federal and state income tax and self-employment tax on his winnings. I estimate he will pay $4,831,195 to the IRS and $690,777 to the Georgia Department of Revenue (45.64% lost to taxes).

Second place went to the aforementioned Steven Jones. Mr. Jones, a real estate broker from Scottsdale, Arizona, earned $6.5 million for finishing second. An amateur gambler, Mr. Jones avoids self-employment tax but does owe income tax to Arizona. I estimate he will owe $2,364,616 to the IRS and $193,700 to the Arizona Department of Revenue (taxes took 39.36% of his winnings).

In third place was Adam Walton of nearby Henderson. Mr. Walton was eliminated when his pair of eights ran into Daniel Weinman’s pair of aces. Mr. Walton, a professional poker player, earned $4 million for his finish. As a Nevada resident, he avoids state income tax. However, he does owe federal income tax and self-employment tax. I estimate he will pay $1,557,986 (38.95%) in tax to the IRS.

Jan-Peter Jachtmann, a marketing manager and publisher of PokerBlatt in Germany, finished fourth for $3,000,000. Formerly a pot-limit Omaha specialist (Mr. Jachtmann won a WSOP event in that game in 2012), he’s likely to play quite a bit more no-limit hold’em in the future. On his final hand, his King-Queen ran into the pocket Aces of Adam Walton; the board gave Mr. Jachtmann no help and he was eliminated. The US-Germany Tax Treaty exempts gambling from withholding. Fortunately for Mr. Jachtmann, Germany taxes only professional poker players. Germany’s Rennwett und Lotteriesteuer (which dates to 1922!) exempts winnings of players (except for professionals). So as long as Mr. Jachtmann keeps his gambling as a hobby he won’t have to pay tax on it to Germany.

Finishing in fifth place for $2,400,000 was Ruslan Prydryk of Lungansk, Ukraine. Mr. Prydryk, a lawyer by training, plays poker part-time. He moved all-in with Queen-Ten, but ran into an Ace-Jack from his opponent. It didn’t help that the opponent also flopped two-pair. The US and Ukraine do have a tax treaty, and it exempts gambling so the IRS gets nothing. Ukraine does tax gambling, though; he faces a 19.5% flat tax rate. He ends up owing an estimated $456,000 (or 16,751,816 hryvnia) to the State Tax Service of Ukraine.

The sixth place finisher was Dean Hutchison, a professional poker player from Glasgow, Scotland. Mr. Hutchison’s long run in the main event ended when his pocket fives ran into the pocket sevens of Jan-Peter Jachtmann (and he received no help from the community cards). Mr. Hutchison earned $1,850,000 for his deep run in the event. Better still, he benefits from two quite favorable tax situations. First, the tax treaty between the United States and the United Kingdom exempts gambling from withholding. Second, the United Kingdom doesn’t tax gambling–even for professional gamblers. It’s always nice when your after-tax income is legally the same as your pre-tax income.

Toby Lewis, a professional poker player from Southampton, England finished in seventh place. Mr. Lewis was perhaps the most accomplished tournament player (along with Daniel Weinman) who made the final table. He maneuvered his short starting stack up two places to finish in seventh for $1,425,000. Like the aforementioned Mr. Hutchison, Mr. Lewis gets to keep all of his winnings thanks to the US-UK Tax Treaty and UK law.

In eighth place was Juan Maceiras of La Caruna, Spain. The Spanish poker professional entered the final table in fifth place but could never get anything going. Still, $1,125,000 is a good consolation prize. The US-Spain Tax Treaty exempts his winnings from withholding by the IRS. However, Spain does tax gambling. Indeed, Spain’s Agencia Tributeria is well known in poker circles as looking for every penny it can find (it has gone after winnings of non-Spaniards who cashed in poker tournaments held in Spain). Earlier this year, the Agencia Tributeria ruled that professional poker players are professional sportsmen; that means Spain gets to withhold tax on non-Spaniards winnings in Spain. For Mr. Maceiras, he will be in Spain’s top tax bracket of 47% (on income of €300,000 or more). Overall, I estimate Mr. Maceiras will owe $528,750 (€523,400) to Agencia Tributeria; he pays the highest percentage of tax of any of the final table participants.

The ninth place finisher was Daniel Holzner. Mr. Holzner is an apple farmer in Italy (yes, he really is) and received the entry as a birthday present for turning 30. He is quoted by PokerNews, “…I guess I have to make a really big, big, big party for them, all of them.” He’ll have plenty of funds for that party. His ninth place finished earned him $900,000. The US-Italy Tax Treaty exempts Italians from withholding. However, he will be taxed in Italy. (Gambling winnings in Italy and the European Union are exempt from Italian tax.) I estimate he will owe $387,000 to Italy’s Agenzia delle Entrate (a high 43% tax rate).

Here’s a table summarizing the tax bite:

That means 33.06% of the winnings at the final table goes toward taxes.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Once again, a player ended up placing higher than his actual finish based on after-tax results. This year, Mr. Jachmann of Germany was the beneficiary of being an amateur gambler. Do note that German professional gamblers don’t get such a good tax result. Indeed, many German professional poker players have moved to Austria (a much more favorable tax situation).

The Internal Revenue Service did not end up with taxes that exceeded the first place winnings; the agency will have to be content with finishing in second place (based on pre-tax prizes) with a haul of just $8,753,797. Still, you can’t say that the IRS didn’t do poorly because the house always wins.

The 2023 World Series of Poker (WSOP) began yesterday here in Las Vegas at the Paris and Horseshoe hotels (the hotels are linked). There are also several other tournament series that have either begun or will soon begin at the Venetian, Wynn/Encore, Aria, MGM Grand, Golden Nugget, and Orleans hotels. Very little has changed from 2018, but I am updating the post I did then with some new information.

In 2022, the WSOP was unable to issue Individual Taxpayer Identification Numbers (ITINs).  The WSOP believes they will soon be able to issue ITINs.  This is a key issue for non-Americans from Tax Treaty countries who don’t already have an ITIN.  Impacted individuals who cash early in the series may want to wait before receiving their winnings until the WSOP officially can issue ITINs.

Good luck to those participating in this year’s WSOP!

And now on to the meat of the post: I’m covering the basics of the tax situation, backing, foreign (non-US) backing, and non-American winners and what they will face with taxes. This post will be somewhat long, so I’m going to break this into sections that you can click on to open. The focus is on tournaments where tax paperwork is issued. I’ve also added a section relating to anti-money laundering (AML) rules.

The Tax Basics

Backing by Americans of Americans

Anti-Money Laundering Rules

[Note 1]: It is likely the IRS would reject a Form 1040NR filed by Jon noting his extra withholding. The IRS won’t understand the issue given that there is no tax treaty issue (say, Jon is from Australia) and say, “Take it up with Caesars.” It’s a classic Catch-22.

Yesterday afternoon, the 2022 Main Event of the World Series of Poker concluded. First, congratulations to Caesars for putting on a mostly great series at the Paris and Bally’s casinos on the Strip. This was the first year the events ran on the Strip (previously, they were held at the Rio Casino about one mile west of the Strip), and the events attracted near-record crowds.

This year, the Main Event had 8,663 entrants, each ponying up $10,000. The prize pool was $80,782,475 (the difference is the funds kept by Caesars for running the event). We focus on the final table of ten, but 1,300 of the 8,663 received winnings from the prize pool; a minimum cash was worth $15,000. The winner received a whopping $10 million…but that’s before taxes.

One important note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk (and/or “swap” action with other entrants). It is quite likely that most (if not all) of the winners were backed (or had swaps) and will, in the end, only enjoy a portion of their winnings. I ignore backing and swaps in this analysis (because the full details are rarely publicized). Now, on to the winners.

Congratulations to Epsen Uhlen Jorstad, a professional poker player and a native of Norway now residing in London. On the final hand, Mr. Jorstad flopped three of a kind (holding Q-2 in his hand, with the flop being 4-2-2). Adrian Attenborough, the second place finisher, flopped top pair (holding J-4); in heads-up play, any pair is usually a good hand. This was definitely not the case this time, with the 8 on the turn changing nothing. The river Queen gave Mr. Jorstad a full house, and when Mr. Attenborough called Mr. Jorstad’s river all-in bet, we had a winner. Mr. Jorstad is a popular poker streamer on Twitch, and he’s also an instructor at the Run It Once poker training site. Mr. Jorstad’s first place prize of $10 million will be his—just his—to enjoy. Had he still resided in Norway, he’d be looking at 39% vanishing in taxes. However, as a resident of the United Kingdom he benefits first from the tax treaty between the United States and the United Kingdom; gambling winnings are exempt. He also benefits from how gambling is taxed in the United Kingdom, or rather, how it’s not taxed. Yes, the U.K. doesn’t tax gambling.

In second place was the aforementioned Mr. Attenborough. A native of Australia, Mr. Attenborough, now resides here in Las Vegas. A professional poker player, Mr. Attenborough will owe US income tax and self-employment tax. Of his $6 million in winnings, I estimate he’ll have to fork over $2,388,875 to the IRS; his actual winnings after taxes are an estimated $3,611,125. State income taxes are a non-issue for Mr. Attenborough: Nevada doesn’t have a state income tax.

In third place was Michael Duek winning $4 million. Mr. Duek resides in Fort Lauderdale, Florida but is a native of Argentina. Mr. Duek, a professional poker player who focuses on pot-limit Omaha, decided to enter the Main Event (the event plays no-limit hold’em). It was an excellent decision, and of his $4 million third-place prize he’ll end up paying an estimated $1,593,064 in tax to the IRS (like Nevada, Florida doesn’t have state income tax) and keep $2,406,936 of his winnings.

John Eames, of Southport in the United Kingdom, finished fourth for $3 million. Mr. Eames is another professional poker player who benefits from the US-UK tax treaty and the United Kingdom’s 0% rate of taxation on gambling. Yes, Mr. Eames gets to keep all of his $3 million.

Finishing in fifth place for $2,250,000 was Matija Dobric of Slatina, Croatia. Mr. Dobric, a professional poker player who mostly plays online, finished 32nd in the 2021 Main Event and bested that this year. The United States and Croatia have just completed negotiating a tax treaty, but it’s definitely not in place today. That means that 30% of Mr. Dobric’s winnings ($675,000) will be withheld and remitted to the IRS. Croatia does tax gambling, but with a maximum tax rate of 30% it is likely that Mr. Dobric won’t owe anything to Croatia: he should be able to take a tax credit on his Croatian tax return to avoid double-taxation of his income. Thus, he should be able to enjoy his $1,575,000 of after-tax winnings.

The sixth place finisher was the first of two amateur poker players at the final table. Jeffrey Farnes, of Dallas, Oregon (near Oregon’s state capital of Salem) ended in sixth place for $1,750,000. As a non-professional poker player, he avoids self-employment tax. However, as a resident of Oregon he owes state income tax on his worldwide income. I estimate he’ll only get to keep $950,312 of his winnings, with $621,968 going to the IRS and $177,720 to the Oregon Department of Revenue.

The other amateur gambler, Aaron Duczak of Kamloops, Canada (in British Columbia) finished in seventh place for $1,350,000. The US-Canada Tax Treaty specifies that Canadians face 30% withholding on their gambling winnings but can get some of this back based on gambling losses. It appears that based on the recent Tax Court of Canada decision in Duhamel c. La Reine that some professional gamblers in Canada will owe Canadian income tax. (Mr. Duhamel, who won the 2010 Main Event, was held to be an amateur gambler in that decision (decision in French); however, it’s clear from the decision that Quebec law would allow for taxation of some professional poker players.) But Mr. Duczak isn’t a professional gambler, so the only tax he’ll owe is the $405,000 withheld to the IRS (he’ll keep the other $945,000).

In eighth place was Phillipe Souki of London. The French professional also moved to the United Kingdom to avoid French taxation. His eighth place finish was worth $1,075,000 and he gets to keep all of it. Had he stayed in France, he’d owe an estimated 47.5% in tax. That’s about 510,000 reasons to be in London rather than Paris.

The ninth place finisher was Matthew Su. A professional poker player residing in Washington, DC, he didn’t have much luck at the final table when his pair of Queens lost to an opponent’s pair of nines. Finishing ninth earned Mr. Su $850,675. That’s before taxes, and Mr. Su will owe an estimated 47.70% of his winnings to tax: $332,898 to the IRS and $72,856 to the District of Columbia’s Office of Tax and Revenue (leaving Mr. Su with just $444,921).

This year, ten players made the final table rather than the usual nine. Day 7 of the Main Event ran so long that the WSOP stopped play with ten left. Finishing tenth was Asher Conniff of Brooklyn, New York. Mr. Conniff’s final table appearance did not last long. On one of the first hands, he went all-in with a pair of tens versus his opponent’s Ace-King. That’s a classic “flip” (a nearly 50% chance for either player to win), but after the flop of three Kings Mr. Conniff was “drawing dead” (he could not win the hand). A professional poker player, Mr. Conniff’s winnings of $675,000 face the highest marginal tax rate of any of the final ten players: 48.21%. I estimate that Mr. Conniff will only keep $349,598 of his winnings, with $253,733 going to the IRS and $71,669 headed to the New York Department of Taxation and Finance.

Here’s a table summarizing the tax bite:

That means 17.81% of the winnings at the final table goes toward taxes.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Once Again, players residing in the United Kingdom ended up finishing higher than their actual results (based on after-tax winnings). Both Mr. Eames and Mr. Souki get to enjoy more of their winnings based on the favorable tax regime of Britain. Someone recently asked me why don’t American poker professionals all move to the UK? Ignoring immigration law, the problem is that Americans pay tax on their worldwide income even if they reside outside the United States (subject to tax treaties and the foreign tax credit to avoid double taxation). An American residing in the U.K. would still owe tax to the IRS on their gambling winnings.

The Internal Revenue Service did not end up with taxes that exceeded the first place winnings; the agency will have to be content with finishing in third place (based on pre-tax prizes). With three winners exempt from US taxation, the IRS didn’t rack in its usual haul. Tax agencies are left with “only” $5.5 million of the nearly $31 million awarded at the final table. Still, you can’t say that the IRS didn’t do poorly because the house always wins.

Last night, the Main Event of the World Series of Poker concluded.  (While there are still a few events to be decided in the WSOP, this is the event that everyone thinks of as the big one.)  Before  I get to the winners (and the tax impacts), I want to give some credit to Caesars Entertainment.  Generally, the WSOP ran without hitches.  There were worries about Covid (especially given the past history of the Rio Hotel and Casino), but until this week that was basically a non-issue.

The Main Event attracted 6,650 entrants, each ponying up $10,000.  The prize pool was $62,011,250 (the difference is the funds kept by Caesars for running the event).  We focus on the final table of nine, but in actuality 1,000 of the 6,650 received winnings from the prize pool; a minimum cash was worth $15,000.  The winner received a cool $8 million…but that’s before taxes.

One important note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk (and/or “swap” action with other entrants). It is quite likely that most (if not all) of the winners were backed (or had swaps) and will, in the end, only enjoy a portion of their winnings. I ignore backing and swaps in this analysis (because the full details are rarely publicized). Now, on to the winners.

Congratulations to Koray Aldemir, a native of Berlin, Germany who currently resides in Vienna, Austria. On the final hand, Mr. Aldemir flopped top two pair (holding 10-7 in his hand).  George Holmes, who finished in second place, had a King in his hand.  That was disastrous for Mr. Holmes when a King appeared on the turn.  The remaining money went in on the final card (the ‘river’) which didn’t change the result.  Mr. Adlemir, a professional poker player who is a regular on the high stakes circuit, benefits from the US-Austria Tax Treaty (his income is exempt from withholding by the IRS).  And there’s a taxing reason why Mr. Aldemir moved from Germany to Austria: Austria does not tax gambling income of its residents.  It sure beats the 46% tax rate he’d be facing if he was residing in Germany.

Finishing second place and winning $4,300,000 was (as previously noted) George Holmes. Mr. Holmes, a resident of Atlanta, is an amateur gambler who mainly plays cash games though he plays the Main Event every year.  I estimate he’ll owe $1,802,011 in tax to the IRS and Georgia leaving him with just under $2,500,000 of his winnings to enjoy.

In third place was Jack Oliver. The resident of Manchester in the United Kingdom benefits from both the US-United Kingdom Tax Treaty (gambling winnings are exempt from withholding) and UK law on gambling: His winnings are not subject to tax in the UK. He gets to keep all $3 million of his winnings.  It’s always nice when your after-tax income legally equals your before-tax income!

Joshua Remitio of Gilbert, Arizona (suburban Phoenix) finished in fourth place winning $2,300,000.  Mr. Remitio previously had entered poker tournaments with a maximum buy-in of $300; by far, he was the individual who came out of nowhere.  Arizona is luckily not a high-tax state; I estimate he’ll owe $1,004,393 in tax to the IRS & Arizona and be able to keep $1,295,607 of his winnings.

Finishing in fifth place was Ozgur Secilmis, of Istanbul, Turkey.  The US-Turkey tax treaty exempts his winnings from US withholding. Turkey, like the United States, taxes the worldwide income of its residents.  Also like the United States, Turkey has a graduated income tax.  The top tax bracket (40%) begins at 650,000 TRY (Turkish Lira); the Turkish Lira today is worth $0.09.  I estimate Mr. Secilmis will owe 7,773,055 TRY (or $699,575) to the Turkish Revenue Administration.

The sixth place winner, Hye Park of Holmdel, New Jersey, is a professional poker player who normally plays cash games.  But his foray into the Main Event sure paid off: sixth place paid $1,400,000.  Unfortunately, New Jersey is not a low tax state (plus as a professional gambler Mr. Park must pay self-employment tax).  I estimate he’ll owe just over $650,000 in tax and get to keep just $749,709 of his winnings.  Mr. Park owes the highest percentage in tax (an estimated 46.45%) of any of the final table finishers.

Alejandro “Papo” Lococo of Buenos Aires, Argentina is an MC and also an ambassador for PokerStars (an online poker site).  Finishing seventh earned Mr. Lococo $1,225,000 but that’s before taxes.  The US and Argentina do not have a tax treaty, so 30% of his winnings are withheld to the IRS.  He’ll be able to take a tax credit on his Argentina tax return for the tax withheld to the IRS; that will lower the tax paid to Argentina to an estimated 5% of his winnings ($61,250) and he overall pays $428,750 in tax. His net winnings are $796,250.

In eighth place was Jareth East of Redhill, England won $1,100,000 for his eighth place finish.  A professional poker player, his winnings are not subject to US tax nor does the United Kingdom currently tax gambling.  Yes, Mr. East gets to keep all $1,100,000 of his winnings.

The ninth place finisher was Chase Bianchi. Mr. Bianchi is a former professional gambler (he is now a software engineer), so he won’t owe self-employment tax.  Still, as a resident of Massachusetts he will pay an estimated 37.56% of his winnings in taxes to the IRS and Massachusetts leaving him estimated after-tax winnings of $624,357.

Here’s a table summarizing the tax bite:

That means 20.56% of the winnings at the final table goes toward taxes.

Here’s a second table with the winners sorted by their estimated take-home winnings:

The players from the United Kingdom did better than their results with Mr. Oliver finishing in second place and Mr. East finishing in 6th place based on after-tax winnings.  Mr. Park fell to eighth place (from sixth) because of taxes.

The Internal Revenue Service did not end up with taxes that exceeded the first place winnings; the agency will have to be content with finishing in third place (based on pre-tax prizes).  With three winners exempt from US taxation, the IRS didn’t rack in its usual haul.  Indeed, the tax agencies ended up exceeding only second place money this year due to those three individuals also being exempt from taxes in their home countries. Still, you can’t say that the IRS didn’t do poorly because the house always wins.

With the World Series of Poker (WSOP) winding down (the Main Event champion will be crowned Wednesday evening–and, yes, I will have my customary post on the real winners of the WSOP on Thursday), an issue arose late in the series.  Why did the WSOP change the rules on players cashing in lammers?

For those of you not in the poker world, let me explain.  “Lammers” are the nickname for satellite chips.  The World Series includes all sorts of tournaments, from the Main Event (which costs $10,000 to enter), numerous other tournaments costing $500 to $10,000 which award WSOP commemorative bracelets, daily tournaments costing $100 to $500, and satellite tournaments.

Satellite tournaments allow someone to enter a larger buy-in tournament without spending the full price.  Let’s say you have $1,080 and want to enter the Main Event.  You could play a one-table satellite.  This mini-tournament has ten players; $1,000 of the $1,080 entry fee goes to the prize pool with the WSOP keeping $80 per player for running the tournament.  The tournament awards twenty $500 buy-in chips (called “lammers”) that can be used to enter any event at the WSOP.  The WSOP has satellite tournaments costing $100 and up awarding various numbers of lammers.

These lammers have printed on them, “No Cash Value.”  The problem with that is obvious: there is value with the lammers.  If you have 20 lammers, you can buy into the Main Event, so each lammer really has a value of $500.  An individual lammer cannot be turned into cash from the WSOP (the Rio Hotel, where the WSOP is being held, will not buy your ‘excess’ lammers).  However, every year there is a brisk trade in lammers.  Many players just play satellite tournaments, collecting lammers and selling them to other players.  The players buying the lammers simply go to the cashier and use the lammers to buy into whatever event they wish.

Until November 8th the WSOP didn’t do a thing about this.  Then Shane Schleger, a professional poker player, noted:

FYI the @WSOP cage is saying they’re not accepting satellite lammers for buyins unless you can verify that you won them yourself. (Seems ridiculous but I would recommend you don’t buy lammers off people selling them at the registration line). CC @Kevmath @MazeOrBowie

— Shane Schleger (@ShaneSchleger) November 8, 2021

There was lots of speculation about why this happened.  Most of the speculation called it greed by the WSOP (unused lammers are completely worthless once the WSOP is over); I believe that’s almost certainly wrong.  This has nothing to do with greed by the WSOP.  Instead, it has everything to do with tax law.  Indeed, there are two separate issues in play.

For years the WSOP has played “wink-wink” in regards to the active market in lammers.  Unless the individuals running the WSOP were blind (and they’re not), they knew about the active marketplace in lammers.  This benefited the WSOP greatly because more individuals played satellites leading to more entrants in all their tournaments.  If the WSOP could, they would want the lammer marketplace expanded. 

Unfortunately, we have to juxtapose the way poker players want the poker world to work with how the IRS and the Financial Crimes Enforcement Network (FINCEN) demand it work.  We have to go into two areas to understand this: the rules regarding issuance of W-2Gs and FINCEN rules regarding cash and cash equivalents.

The WSOP is required to issue W-2Gs (or Form 1042-S for a non-American) if someone wins a prize in a poker tournament of more than $5,000 in cash (or cash equivalent) net of the buy-in.  Assume those lammers have cash value; that means the WSOP would be required to issue a W-2G if someone wins a one-table satellite awarding $10,000 in lammers.  It takes time and costs money for the issuance of a W-2G.  Indeed, the reason why the minimum prize for the WSOP main event is $15,000 relates to the IRS rule on issuing W-2Gs.  That’s a $5,000 net profit and a W-2G is not required (where it would be at $15,001).

Unfortunately, the IRS, FINCEN, the Nevada Gaming Control Board, or Caesars internal auditing likely noticed the wink-wink.  (Caesars Entertainment owns the WSOP.)  Gambling is heavily regulated, and the amount of paperwork required for a casino is staggering.  (That’s a subject for another day, but whatever you think it is, the correct answer is almost certainly to double or triple what you think.)  Paperwork has to be completed exactly right, too.  If there’s an active marketplace in satellites that the WSOP condones, then paperwork must be issued.  Thus, the order came from ‘higher up’ to put an end to the wink-wink.  If lammers can only be used to buy into another tournament, they truly have no cash value because they cannot be sold and turned into cash.

Second, casinos are financial institutions under the Bank Secrecy Act and are regulated by FINCEN.  Casinos must issue Currency Transaction Reports (for casinos, CTRCs) and Suspicious Activity Reports just like banks.  Indeed, the Bicycle Casino in Bell Gardens, California was just fined $500,000 for not complying with money laundering laws.  If lammers are being used as cash (which they were), then they fall under BSA reporting.  That would be a near impossible task for the WSOP to deal with.  Thus, one of FINCEN, the Nevada Gaming Control Board, or Caesars internal auditing had a second reason to put a stop to the trade in lammers.

If greed had won out, the wink-wink would have continued forever.  Instead, the real world intruded.

The World Series of Poker will begin here in Las Vegas on September 30th.  While attendance is likely to be less than in previous years (it’s still difficult to travel internationally to the United States), thousands of poker players will be heading to the Rio Hotel with the hopes of winning a bracelet.  The biggest news isn’t tax-related; rather, all participants (and spectators) most be fully vaccinated against Covid.  From a tax standpoint, nothing has changed from this update I wrote in 2018.

For those of you attending, good luck!

This year was the 50th anniversary of the World Series of Poker (WSOP). And by all accounts, this year’s series of tournaments was highly successful. Attendance was up across the board. The Main Event, which concluded early this morning, was no exception. 8,569 entrants paid $10,000 each for their chance to win $10 million, the second-most entrants all time.

One important note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk (and/or “swap” action with other entrants). It is quite likely that most (if not all) of the winners were backed (or had swaps) and will, in the end, only enjoy a portion of their winnings. I ignore backing and swaps in this analysis (because the full details are rarely publicized). Now, on to the winners.

Congratulations to Hossein Ensan of Munster, Germany. Mr. Ensan beat second place winner Dario Sammartino when Mr. Sammartino’s two-way draw (he had both a flush and straight draw) did not catch up to Mr. Ensan’s pocket kings. Mr. Ensan’s German Wikipedia page notes that he emigrated from Iran in 1990 and is listed as a professional poker player. Whether he’s a professional or an amateur makes a huge difference for taxes. In 2017, the Federal Fiscal Court (Germany’s highest court dealing with tax issues) ruled that professional gamblers must pay income tax on their net gambling winnings (less expenses); amateur gamblers do not have to pay income tax on gambling winnings. The US-Germany Tax Treaty exempts his winnings from US taxation.

This is a huge issue for Mr. Ensan; the classification is the difference between earning $10 million and earning $5,393,531. Assuming Mr. Ensan is subject to income tax, he’ll lose $4,606,469 to the Bundeszentralamt für Steuern (BZSt). That’s a reason why many German professional poker players reside in the United Kingdom: They avoid the high German taxes.

Finishing in second place and winning $6,000,000 was the aforementioned Dario Sammartino. The native of Naples, Italy now resides in Florence, Italy after a stay in Slovenia. Italy does tax gambling winnings: Mr. Sammartino will owe an estimated $2,572,350 to Italy’s Agenzia delle Entrate (42.87%)

In third place was Alex Livingston. The resident of Halifax, Nova Scotia, Canada benefits from Canadian law on gambling: His winnings will not be subject to tax in Canada. However, he will lose a flat 30% of his $4,000,000 ($1,200,000) to the IRS per the US-Canada Tax Treaty. (He can file a Form 1040NR return for the 2019 tax year to recover a portion of his tax based on any taxes US gambling losses he had during the year.)

Garry Gates of nearby Henderson ended in fourth place. Mr. Gates, who has worked in the poker industry for years, earned $3,000,000 for his finish. An amateur gambler, he avoids self-employment tax. As a Nevada resident, he also avoids state income tax. I estimate he will owe $1,050,813 (35.03%) of his income to tax.

Another amateur gambler, Kevin Maahs of Chicago, finished in fifth place. Mr. Maahs won $2,200,000 before taxes for his finish. He owes both federal and Illinois income taxes on his winnings; he’ll likely lose $870,729 (39.58%) to tax.

Finishing in sixth place was Zhen Cai. Mr. Cai, a professional gambler residing in Lake Worth, Florida earned $1,850,000 for his efforts. One of two American professional gamblers at the final table, he must pay self-employment tax and federal income tax (as a Floridian, he avoids state income tax). I estimate he will lose $706,679 (38.20%) to tax.

Nick Marchington from London, England finished in seventh place for $1,525,000. Mr. Marchington, a professional gambler, gets to keep all of his winnings. The US-UK Tax Treaty exempts gambling winnings of UK residents from tax. And the United Kingdom doesn’t tax gambling winnings. As my mother says, location, location, location.

In eighth place was Timothy Su of Boston. Mr. Su, a software engineer, does avoid self-employment tax. He does have to pay federal and Massachusetts income taxes. There’s a slight bit of good news for Mr. Su: Massachusetts’s income tax rate dropped for 2019 from 5.15% to 5.05%. That’s not a huge change, but when you win $1,250,000 and will have to pay an estimated $491,150 in tax, saving $1,250 is still better than nothing.

The ninth place finisher was Milos Skrbtic. Mr. Skrbtic, a professional gambler, was born and raised in Serbia, but currently resides in San Diego. Had he remained in Serbia he would lose 50% of the $1,000,000 he won to tax. The US and Serbia don’t have a Tax Treaty, so 30% would be withheld by the IRS. Serbia does give a tax credit on their income tax, but only for taxes paid to a country which Serbia has an income tax treaty for. Since the US and Serbia do not have such a treaty, he would have been liable for Serbia’s 20% tax on gambling winnings. Unfortunately, Mr. Skrbtic lives in California; the Golden State is anything but a low tax environment. I estimate he faces the highest tax burden of any of the final table participants: He will owe an estimated $474,463 in tax (47.45%).

Here’s a table summarizing the tax bite:

That means 38.84% of the winnings at the final table goes toward taxes.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Mr. Marchington finished in seventh place but ended up in fifth based on after-tax income. As my mother says, it’s location, location, location.

The Internal Revenue Service didn’t end up as the biggest winner at the final table this year. Thanks to two of the top three winners being exempt from US taxation, the IRS had to be content with earning just a bit more than fourth place money. The German Tax Agency, Bundeszentralamt für Steuern, is the biggest winner among tax agencies. As usual, the house–the tax agencies–ended up with more than first place money. The house always wins.

The 50th World Series of Poker begins today at the Rio Hotel and Casino here in Las Vegas. Good luck to all those who are participating this year.

Regarding taxes and the WSOP, nothing has changed from 2018. Thus, you can look at this post from last year to see how taxes will impact you.

Last week, I watched an excellent presentation from CNBC on commercial backing of poker tournament players. If you’re considering backing or being backed, I strongly suggest you watch the presentation. If you use one of the two current major commercial companies that back (YouStake and StakeKings), I would make sure you and them are aware of who is responsible for sending out tax paperwork and withholding from winnings if you are lucky enough to cash. As my mother likes to say, an ounce of prevention is a worth a pound of cure.

Over the past two weeks 7,874 competitors (myself included) paid $10,000 to enter the main event of the World Series of Poker. Who would win the money? And how much of the winnings would they actually get to keep?

One important note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk. It is quite likely that most (if not all) of the winners were backed and will, in the end, only enjoy a portion of their winnings. I ignore backing in this analysis (because the full details are rarely publicized). Now, on to the winners.

Congratulations to John Cynn of Evanston, Illinois for winning the 2018 WSOP Main Event and a cool $8,800,000. After a mammoth 10-hour heads-up battle against Tony Miles (where the chip lead went back and forth), Mr. Cynn finally prevailed when his king-jack flopped trips and all Mr. Miles could muster was queen-high. Mr. Cynn will pay federal income tax, self-employment tax (all nine of the final players are professional gamblers), and Illinois income tax. Of his winnings he’ll lose an estimated $3,860,183 to tax (keeping $4,939,817), a tax burden of 43.87%. Mr. Cynn definitely benefits from tax reform; had he had the same winnings in 2017 he would have owed $4,094,676 so he saves $234,493. Another way of looking at this is his tax burden last year would have been 46.53%. Mr. Cynn has the second highest tax burden of the final nine.

The aforementioned Tony Miles finished in second place. A resident of Jacksonville, Florida, Mr. Miles benefits from Florida’s lack of a personal income tax. Mr. Miles, like all of the Americans at the final table, will owe federal income tax and self-employment tax; he’ll owe an estimated $1,939,341 (38.79%) of his winnings.

Finishing in third place and winning $3,750,000 was Michael Dyer of Houston. Mr. Dyer had the chip lead for the first part of the final table but ran into a full house of held by Mr. Miles. The Texan avoids state income tax but will still lose an estimated $1,449,275 to federal tax (38.65%). Mr. Dyer has the lowest tax burden of the six Americans at the final table (and the second-lowest tax burden overall).

Nicolas Manion of Muskegon, Michigan started the final nine with the chip lead but couldn’t make it through; he ended up in fourth place for $2,825,000. Mr. Manion is the only individual who will end up paying three taxes: federal, state, and city. Michigan has a flat income tax of 4.25% and Muskegon has a city income tax of 0.5%. Still, Mr. Manion is better off in 2018 than if he had won this in 2017; he’ll lose only an estimated $1,217,323 to tax (43.09%).

Joe Cada finished fifth for $2,150,000. If that name sounds familiar, it should: Mr. Cada won the Main Event in 2009. This time around Mr. Cada’s pocket tens lost a classic race against Mr. Miles’s ace-king. Thanks to tax reform, Mr. Cada loses only 40.59% of his winnings to tax ($872,635) compared to 42% back in 2009. Mr. Cada, a resident of Shelby Township, Michigan, owes federal and Michigan tax.

Aram Zobian of Cranston, Rhode Island, ended up in sixth place for $1,800,000. A professional poker player, Mr. Zobian will owe federal and Rhode Island tax. Rhode Island has marginal tax rates up to 5.99%, so it’s in the middle of the pack for states. Overall, Mr. Zobian will owe an estimated $721,821 in tax (40.10%).

Alex Lynskey of Melbourne, Australia finished in seventh place. While the US and Australia have a tax treaty, it does not cover gambling. Thus, of Mr. Lynskey’s $1,500,000 of winnings, he loses 30% off the top to the IRS ($450,000). Australia does not tax gambling winnings for amateur gamblers but it does tax gambling winnings of professional gamblers. The Australian tax system somewhat mirrors ours in that are marginal rates; however, Australia’s top rate is 45% compared to our 37%. The US-Australia Tax Treaty does specify that a foreign tax credit can be taken for taxes paid to the other country. Mr. Lynskey would have paid an estimated $666,296 to the Australian Taxation Office; given the US tax he’s paid that number is reduced to $216,296 (or $292,000 Australian).

In eighth place was Artem Metalidi of Kiev, Ukraine. Mr. Metalidi will pay the least tax of any of the final nine, both in dollars and by percentage. Ukraine has a flat tax rate of 18% plus a 1.5% military tax (a total of 19.5%). Mr. Metalidi will lose only an estimated $243,750 of his $1,250,000 to tax. None of that is going to the IRS: The tax treaty between the Ukraine and the United States exempts gambling winnings from taxation.

Antoine Labat, a professional poker player from Vincenna, France, finished in ninth place. He earned an even $1 million, but that’s before taxes. The United States and France have a tax treaty exempting gambling winnings, so he lost nothing to Uncle Sam. However, France is anything but a low-tax environment. While 2018 French tax rates have not been announced (they’re not announced until late in the year), based on 2017 rates Mr. Labat will lose $432,574 (€369,721) of his $1 million (€854,701) winnings to taxes.

Here’s a table summarizing the tax bite:

That means 39.01% of the winnings of the final nine will go to taxes. That’s up from 2017 because last year four of the final nine faced no taxation (they were all residents of the United Kingdom which does not tax gambling winnings).

Here’s a second table with the winners sorted by their estimated take-home winnings:

Mr. Metalidi finished in eighth place but based on after-tax winnings he finished in seventh place. The Ukraine’s low flat-rate income tax gives him a benefit over the relatively high taxes in Australia.

But the true winner this year was the Internal Revenue Service. The IRS’s take of $9,811,437 exceeds the combined after-tax winnings of the first and second place winners ($8,000,476) and nearly exceeds the top three! Taxes may be what we pay for a civilized society, but we sure pay a lot of them. One truism this year (as usual) is that the house (the IRS) always wins.

The 2018 World Series of Poker (WSOP) begins today here in Las Vegas. There are also several other tournament series that have either begun or will soon begin at the Venetian, Wynn/Encore, Aria, Planet Hollywood, Binion’s, Golden Nugget, and Orleans hotels. Very little has changed from 2017, but I am updating the post I did last year with some new information.

The WSOP has made one change that could impact some Americans: If you use a passport for identification, you must bring a second piece of identification (such as a state ID card). From the WSOP FAQs:

What Photo ID’s are acceptable?
The following forms of ID are acceptable:
US Passport [and Passport Card] (A second form, an unexpired governmental ID verifying physical address such as a valid Driver’s License will also be required with this first form of ID).

(A driver’s license or state ID by itself is sufficient.)

Good luck to those participating in this year’s WSOP! And now on to the meat of the post:

The tax environment has changed, so I’ve decided to do a thorough update of the tax situation for those attending the WSOP (and other summer poker tournament series here in Las Vegas). I’ll cover the basics of the tax situation, backing, foreign (non-US) backing, and non-American winners and what they will face with taxes. This post will be somewhat long, so I’m going to break this into sections that you can click on to open. The focus is on tournaments where tax paperwork is issued.

The Tax Basics

Backing by Americans of Americans

Backing: Non-Americans

Non-Americans and ITINs

[Note 1]: I recently became aware of a lawsuit in the Midwest where Caesars’ policy is being challenged. The lawsuit is scheduled for trial in late January 2018.

[Note 2]: It is likely the IRS would reject a Form 1040NR filed by Jon noting his extra withholding. The IRS won’t understand the issue given that there is no tax treaty issue (say, Jon is from Australia) and say, “Take it up with Caesars.” It’s a classic Catch-22.