Updated IRS Handpay Rules Create Phantom Income Exposure for Casino Players
New IRS handpay reporting rules from January 2026 and a 90% loss deduction cap create phantom income tax exposure for casino players.Summary
Starting January 1, 2026, the federal handpay reporting threshold for slot jackpots rose from $1,200 to $2,000, with the same threshold applying to bingo and keno. Poker tournaments require reporting when net winnings exceed $5,000 after subtracting the buy-in.
Combined with a new 90% cap on gambling loss deductions, these rules create "phantom income"—taxable income even for players who break even. For example, a player who wins $10,000 and loses $10,000 back still faces roughly $220 in federal tax at the 22% bracket, before state taxes. Higher adjusted gross income can also increase Medicare premiums, make Social Security benefits taxable, and reduce health insurance subsidies.
The article advises detailed session logs, setting aside 25–30% of handpays for taxes, and consulting a tax professional. While casinos report wins and withhold taxes only when taxpayer identification is missing, they face reputational risk from player frustration over surprise tax bills. Congressional proposals to restore full deductibility have not passed.
(Source：Sccg Management)