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Casino Winnings & Annuity Payments

A lucky night at the casino comes with a number of financial decisions, including deciding whether to receive winnings as a lump sum or structured settlement. Both payout options are subject to inflation and can be cashed in for immediate money.

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Receiving Casino Winnings

Winning big at the casino can come with a number of tax implications and financial decisions, specifically when choosing the best payout method. Typically, winnings are placed in a structured settlement providing consistent payments for a determined period of time. But what if you want the winnings now? In this case, winners can choose to sell a portion or all of their casino settlement in exchange for a lump sum of cash.

While receiving a one-time lump sum allows winners to address bigger financial emergencies, including paying for college tuition or medical expenses, receiving a lump sum payment can also negatively influence spending and saving habits. In addition, lump sum payments are taxed as ordinary income, though you only have to pay them one time.

On the other hand, receiving casino winnings as a structured settlement provides a controlled income stream over a longer period. Payments are not taxed until they are disbursed, allowing for interest to accrue over time. However, this payout option limits the amount of cash a winner receives at one time, especially if additional funds are needed for financial emergencies.

How Do Casinos Pay Out Large Sums of Money?

You’ve just had a lucky night. While you are still in the casino, you will need to provide identification and sign IRS tax forms in order to accept your prize. And then you get your money, right?

Casinos have various ways of paying winners. Generally, if the winnings are $25,000 or less, winners can choose between cash or check. If the winnings are larger, the options may change depending on the location of the casino and the game gambled upon.

Some games allow for a lump sum disbursement, where the money is paid upfront. Other games disburse winnings through an annuity, where the money is paid in installments. Often, winners have up to 90 days to decide whether they want a lump sum or annuity, though in some cases they are not given a disbursement option, and only a lump sum is offered.

All winnings — specifically from lottery payouts, poker tournaments, horse races and slot machines — are taxable at the federal level, and some may be taxable at the state level, too. Since each state has its own set of regulations for gambling taxes, be sure to pay close attention to the local requirements before filing your next tax return. In addition to state tax, the IRS also taxes gambling winnings. For certain games and for larger winnings, winners will receive IRS Form W2-G from the payer.

  • $600 or more in gambling winnings, except winnings from bingo, keno, slot machines, and poker tournaments, if the amount is at least 300 times your bet
  • $1,200 or more from a slot machine or bingo game
  • $1,500 or more in keno winnings
  • $5,000 or more in a poker tournament

If winnings meet or exceed the above thresholds, the casino will withhold up to 25 percent of your winnings in taxes before disbursing the final amount.

Lump Sum vs. Annuity Payments for Casino Winnings

The quickest way to determine how winnings are disbursed is to look at the faces of common slot machines. It will clearly disclose whether the machine is an annuity game or an immediate full-pay win.

If you are given the choice of payout options, it may be wise to consult with a certified financial planner, tax attorney or certified public accountant to help determine the best decision.

Choosing the lump sum option from the casino means settling for cash at a discounted rate of 50 to 60 percent of the total winnings. The lump sum discount rate is determined through either the current prime rate or a rate formulated from U.S. Treasury securities chosen by the licensee.

While this option provides a bulk of cash all at once, winners have to pay taxes on the sum in its entirety the same year it is distributed. However, the taxes are paid only once. This option may work best for those looking to pay off debt or address other immediate financial needs.

Claiming a casino annuity means committing your winnings to a long-term payment plan that can take 20 to 30 years to fully disburse. This guarantees an additional income stream over time. Generally, winnings are paid at the minimum amount annually.

  • Periodic payments are used for prizes of $100,000 or more.
  • If the prize is between $100,000 and $200,000, payments will amount to at least $10,000 annually.
  • If the prize is more than $200,000, the annual payments will not be less than 5 percent of the total amount.

However, leaving casino winnings in an annuity sacrifices some of the value of your money.

Learn Which Casino Payout Option Is Best for You, a Lump Sum or Annuity. What You Do With Your Casino Winnings Could Affect Your Taxes & Finances in the Future.

This Is What Really Happens When You Hit A Casino Jackpot

What happens when you win big at the slots? A bit more (and a bit less) than you’d think.

It’s every gambler’s dream.

You put money in the slot machine, pull the lever (or press the button, on most modern machines), and watch the symbols come up. You see one cherry, two cherries, then…

Hello I’m Nik 🎞 on Unsplash

Suddenly, you realize what you’re looking at. You’ve won the jackpot, and you’re about to walk out of the casino a winner. Depending on the size of the jackpot, your life might change from this point forward.

We’re happy for you, but before you count your winnings, there are a few things you should know.

1. You’re going to have to fill out a tax form.

We’re going to assume that you won more than $1,200. Bad news: The IRS gets a cut.

Kelly Sikkema on Unsplash

You’re going to have to pay tax on all of your winnings, and the casino will issue you a W-2G form, a special IRS document designed specifically for “certain gambling winnings.” The good news is that if you’re a frequent gambler, you can deduct the money you spent while chasing that jackpot—provided, of course, that you kept records of both your wins and your losses.

2. A casino worker will quickly home in on you.

Expect a quick visit from one of the casino workers. Your jackpot win just sent a signal back to the casino’s monitoring room, so an attendant will rush over to verify your win. They’ll ask to see your identification, and you won’t get a cent until you show a valid government-issued I.D.

KAY on Unsplash

That applies to nonresident aliens, too; they’re eligible to win jackpots, but they’re also taxed, albeit at a different rate from U.S. residents. If you don’t have any identification, the casino will hold the money in safekeeping until you can provide some. Some casinos keep millions in their safekeeping accounts for years—by law, they’re not allowed to spend it.

Provided that you’ve got identification, however, the casino might just hand you your cash. Casinos take pride in fast “hand pays,” so don’t be surprised if the attendant has a bundle of $100 bills.

3. If you win more than $5,000, you’ll probably receive a check.

Probably, but not necessarily. In some states, casinos will hand out incredibly large sums of cash, and while they’ll happily get their security teams to escort you to your car, you’re on your own after that.

Giorgio Trovato on Unsplash

Casinos prefer to pay cash whenever possible, since it increases the chances that you’ll keep playing. Hey, they’re running a business, here.

Some state laws can complicate the payout. Before they hand you anything, they’ll have to verify that you’re not on the state’s exclusion list, and if you are, you’re not getting a cent (otherwise, the casino could face a hefty fine). This is meant to deter addicted gamblers from relapsing. Hey, why play if you’ll never win?

Generally, you’ll receive the full amount that you won, because most states don’t require casinos to take out withholding taxes from gambling wins. You can ask the casino to withhold taxes, though, and usually they’ll comply.

4. By the way, you might not get anything.

When the attendant comes over to issue you your check or a hefty wad of cash, the first thing they’ll do is to check the machine. They need to verify that the slots are functioning properly and that your win wasn’t the result of a machine malfunction.

Benoit Dare on Unsplash

But wait—if it is a machine malfunction, that’s on the casino, right? You still get your money, don’t you?

Nope. In October 2016, a New York woman thought she’d won $43 million from a slot machine, but a casino attendant told her that the machine had malfunctioned. To compensate for the error, the casino offered her…a free steak dinner. Most slot machines have labeling that says, “Malfunctions void all pays and plays,” which protects casinos against these sorts of losses.

Unfortunately, the New York State Gaming Commission agreed with the casino that the woman was only entitled to her actual winnings, a whopping $2.25.

5. If you win more than a million dollars, you’ll only get part of the money.

You can decide to have the rest of the amount paid in full, but that’s not your only option. Most casinos will also let you take an annual fixed sum.

Celyn Kang on Unsplash

If you’re trying to get the biggest payout possible, the annuity is usually the smarter choice. It will make money management significantly easier and reduce your tax bill in some circumstances. Don’t worry, you don’t have to decide right away; the casino will give you 90 days to make your choice.

During that time, the casino will try its best to make you part of its marketing campaign. You’ll be invited to casino events, presented with massive checks, and interviewed by the local media. Of course you don’t have to take part in any of that if you don’t want to, but most winners get swept up in the experience.

6. If you continue to gamble, the casino will be watching you.

Make no mistake about it: When you’re gambling, you’re being intensely monitored by professionals. If you luck out and take the house for a boatload of cash, they’ll be keeping an extra close eye on you for the rest of your stay. For more on the way casinos treat you—before and after a big win—give our video below a look:

7. The casino might make you wait for a while.

Expect to wait awhile if you’ve won a massive jackpot. The casino will need to verify your win, inform managers, collect tax forms, check that you’re not on the state’s restricted list, and handle a bunch of accounting paperwork before you see a dime.

Kai Pilger on Unsplash

For some jackpots, payout can take hours, although the casino will work to handle it as quickly as possible. Unfortunately, in some cases, it’s out of their hands; some payouts are actually handled by game manufacturers, so you may wait days or weeks for your money.

If you’ve only won a few thousand dollars, you’ll probably get the money within minutes, but don’t stress out if it takes longer. The casino’s not trying to get out of paying. Your best bet is to go grab a meal at the casino’s restaurant and start calling banks to find a good rate on a CD.

8. If you’re a big winner, you’re incredibly lucky.

That depends on the slot machine, of course, but all of them pay out on a relatively infrequent basis. Otherwise the casinos wouldn’t make any money.

Michał Parzuchowski on Unsplash

Let’s say that your slot machine has 64 stops on each reel. Your chances of getting a jackpot would be roughly 1 in 262,144, and many machines have far more than 64 stops per reel.

If you’re looking for some good news, the law is on your side, to some degree. In most states, the slot machine must pay back at least 75 percent of the money it takes in. Percentages vary quite a bit, and casinos don’t have direct control over those percentages.

You might also be a cheater, of course, but your chances of successfully cheating a slot machine are even lower. To get away with cheating, you’d need to directly alter the erasable programmable read-only memory (EPROM) chip on the inside of the machine—something that the staff would certainly detect. You can’t “hack in,” either, since that part of the machine has no network access.

What happens when you win big at the slots? A bit more (and a bit less) than you'd think. ]]>