On November 22, 2011, An Act Establishing Expanded Gaming in the Commonwealth (“the Act”) was approved and became law.[1] The Act added new chapter 23K to the General Laws, which provides for expanded gaming in Massachusetts under the jurisdiction of the Massachusetts Gaming Commission. The Act authorizes the Massachusetts Gaming Commission to license certain gaming establishments:  one casino in each of three regions in the state, and a single slots parlor that can be in any region. This TIR explains the changes made by the Act to chapter 62, the personal income tax, chapter 62B, the withholding tax, and chapter 62C, tax administration.

A. Background; Personal Income Tax, G.L. c. 62, and Changes under the Act

For purposes of the personal income tax, Massachusetts gross income is federal gross income as defined under the Internal Revenue Code (“Code” or “IRC”) of January 1, 2005, with certain modifications not relevant here.[2] Federal gross income is all income from whatever source derived, except from those sources specifically excluded by the Code. Federal gross income includes winnings from all types of wagering including, without limitation, the Massachusetts lottery and other lotteries, casino and slots parlor gaming, charitable gaming (e.g., bingo or beano, raffles, and “casino” or “Las Vegas” nights), dog and horse track betting (live and simulcast), and any other type of gambling.[3] 

A resident of Massachusetts must include in Massachusetts gross income any lottery and wagering winnings includible in federal gross income, whether the winnings are from wagering in Massachusetts or in another state or jurisdiction. A resident may take a credit against the Massachusetts personal income tax for income taxes properly due to other states, any territory or possession of the United States, or Canada or any of its provinces, on any item of Massachusetts gross income.[4] 

A nonresident is subject to the personal income tax on certain types of Massachusetts gross income that arise from Massachusetts sources.[5] Under the Act, the scope of Massachusetts source income is expanded to include the following wagering winnings:

. . .  items of gross income derived from or effectively connected with: . . .   (2) the participation in any lottery or wagering transaction within the commonwealth, including gaming winnings acquired at or through a gaming establishment licensed under chapter 23K; . . . [6]

Accordingly, a nonresident’s lottery or wagering winnings from Massachusetts sources are subject to the Massachusetts personal income tax. For a nonresident, wagering income is Massachusetts source income if the winnings are derived from any of the following: (1) A casino or slots parlor located in Massachusetts, (2) the Massachusetts lottery, (3) a multijurisdictional lottery if the ticket was purchased within Massachusetts, (4) pari-mutuel wagering paid by a Massachusetts racetrack or simulcast center, or (5) any other wagering transaction within Massachusetts.  

A nonresident whose Massachusetts source income exceeds either $8,000 or the prorated personal exemption, whichever is less, is required to file a Massachusetts income tax return.[7] If a nonresident’s state of residence has an income tax, the nonresident may be able to claim a credit for tax paid to Massachusetts on the income tax return for the home state.

B.  Withholding of Personal Income Tax, G.L. c. 62B

Chapter 62B requires withholding on certain wagering winnings, including, but not limited to, certain wagering winnings that are subject to federal withholding under the Code. For purposes of the withholding rules, references to the Code mean the current Code as amended and in effect for the applicable year.

The Act, effective November 22, 2011, provides that wagering winnings are subject to Massachusetts withholding as follows: 
 

Every person, including the United States, the commonwealth or any other state, or any political subdivision or instrumentality of the foregoing, making any payment of lottery or wagering winnings which are subject to tax under chapter 62 and which are subject to withholding under section 3402 of the Internal Revenue Code, without the exception for slot machines, keno and bingo played at licensed casinos in subsections (q)(5) and (r) of said section 3402 of the Internal Revenue Code, shall deduct and withhold from such payment an amount equal to 5 percent of such payment, except that such withholding for purposes of this chapter shall apply to payments of winnings of $600 or greater notwithstanding any contrary provision of the Internal Revenue Code. For the purposes of this chapter and chapter 62C, such payment of winnings shall be treated as if it were wages paid by an employer to an employee. [8] 
 

Accordingly, a payor of Massachusetts lottery or wagering winnings of $600 or greater is required to deduct and withhold Massachusetts personal income tax in an amount equal to five percent of a payment made  to a Massachusetts resident  or a nonresident, in the following situations:

  1. The winnings are subject to tax under chapter 62, and
  2. The payment is subject to withholding under rules described in § 3402 of the Code[9], but modified for Massachusetts withholding purposes as follows:
    • Payments of winnings of $600 or greater are subject to Massachusetts withholding notwithstanding that higher dollar thresholds for federal withholding are provided in § 3402 of the Code.
    • Payments of winnings of $600 or greater from slot machines, keno, and bingo played at licensed casinos are subject to Massachusetts withholding notwithstanding the exemption that would apply from federal withholding in § 3402 of the Code.[10]

Horse and Dog Racing. Under prior law,[11]  there was an exemption from Massachusetts withholding for winnings from horse and dog racing. The Act removed the exemption from Massachusetts withholding for winnings from horse and dog racing.  Under the Act, a payment of winnings of $600 or greater from horse or dog racing (including winnings from simulcast horse or dog racing) is subject to Massachusetts withholding.[12]   

Massachusetts Withholding Required on Certain Winnings from Slot Machines, Keno and Bingo Notwithstanding Federal Exemption. Under prior law, there was an exemption from Massachusetts withholding for winnings from slot machines, keno and bingo that was tied to the federal exemption from withholding in Code § 3402(q)(5).[13] However, under the Act and as noted above, Massachusetts has decoupled from this federal exemption to the extent the winnings are from “slot machines, keno and bingo played at licensed casinos.” Thus, under the Act, Massachusetts withholding is required from a payment of winnings of $600 or greater from slot machines, keno or bingo played at licensed casinos, including at a licensed slots parlor.[14] 

Winnings Treated As Wages. For the purposes of General Laws chapter 62B   (Withholding of Taxes on Wages and Declaration of Estimated Income Tax), and chapter 62C (Tax Administration), a payment of winnings is treated as if it were wages paid by an employer to an employee.[15] 

Identification. Before or at the time a person receives a payment of winnings that is subject to Massachusetts withholding, the payee must furnish to the person making such payment a statement, made under the penalties of perjury, containing the name, address and taxpayer identification number of the person receiving the payment and of each person entitled to any portion of such payment.[16] Proof of identity includes a Driver’s License or other State-issued photo identification.  

Amounts Subject to Massachusetts Withholding. Payors must withhold Massachusetts personal income tax each time a payor makes a single payment of lottery or wagering winnings of $600 or greater. It does not matter that several individuals may jointly hold the winning ticket and each person’s “share” is less than $600.[17] If the proceeds from the wager qualify as winnings subject to Massachusetts withholding, then the total proceeds from the wager, and not merely amounts in excess of $600, are subject to withholding. In determining the amount paid with respect to a wager, proceeds which are not money, e.g. where the winnings consist of a car or boat, shall be taken into account at the fair market value. 

Form W2-G. The payor must provide a withholding statement, Form W2-G, Certain Gambling Winnings, on all winnings of $600 or greater. Some winners will receive the Form W2-G at the time of the payment of wagering or gaming winnings. If not, the payor must furnish a Form W2-G to the payee before January 31 of the following year.[18] 

Liability for Failure to Withhold or Pay Over Withheld Taxes. A payor or other person required to withhold who fails to withhold or pay to the Commissioner any sum required by the withholding statutes to be withheld or paid shall be personally and individually liable for such sum to the Commonwealth, together with related interest and penalties  under G.L. c. 62B and G.L. c. 62C.[19]  

C.  Annual Reports by Entities Doing  Business in Massachusetts, G.L. c. 62C, § 8 

Information Return.  Every person or entity doing business in the Commonwealth who makes payments which are taxable to the recipient under G.L. c. 62, the personal income tax, must file an annual report with the Commissioner: (1) giving the names and addresses of all residents of Massachusetts and other persons deriving income in Massachusetts to whom it has paid any income subject to the personal income tax during the preceding calendar year on the same basis as is required by the federal government under the Code, and (2) state in such report the amount of such income so paid by it.[20]

Under the Act, this same basis of reporting must be utilized for income that is subject to taxation or withholding under chapter 62 or 62B even where it is not subject to federal taxation or withholding under the Code.[21] Thus, a person making payments of winnings subject to the Massachusetts personal income tax or withholding is required to file an information return in Massachusetts even if the winnings are not subject to federal income tax or withholding.[22]

 

/s/Amy Pitter
Amy Pitter
Commissioner of Revenue

 

AP:MTF:adh

February 28, 2013

TIR 13-4



[1] St. 2011, c. 194.
[2] G.L. c. 62, §§ 1, 2.
[3] IRC § 61(a). 
[4] G.L. c. 62, § 6(a).
[5] G.L. c. 62, § 5A.
[6] G.L. c. 62, § 5A as amended by St. 2011, c. 194, § 27.
[7] G.L. c. 62, §§ 5 and 5A; A nonresident taxpayer’s personal exemption must be prorated based on the ratio of Massachusetts source income to the gross income that would have been taxed to the taxpayer had he or she been a Massachusetts resident for the taxable year.   
[8] G.L. c. 62B, § 2 (seventh paragraph, first and second sentences), as amended by St. 2011, c. 194, § 28.

[9] In general, wagering winnings that are subject to federal withholding are those in excess of $5,000. The federal regulations provide that winnings subject to withholding means any payment from:

  1. A wager placed in a State-conducted lottery resulting in winnings greater than $5,000;
  2. A wager placed in any other sweepstakes, wagering pool, or lottery, including a pari-mutuel pool with respect to horse races, dog races, or jai alai, resulting in winnings greater than $5,000; and
  3. Any other wagering transaction where the winnings exceed $5,000 and are at least 300 times as large as the amount of the wager.
[10] Federal law requires casinos to report to the Internal Revenue Service certain winnings from bingo, keno and slot machines where no federal withholding is required. See footnote 13, below.  

[11] Prior to the Act, pursuant to G.L. c. 62B, § 2 (seventh paragraph), wagering winnings subject to Massachusetts withholding were described as follows:   

Every person, including the United States, the commonwealth or any other state, or any political subdivision or instrumentality of the foregoing, making any payment of winnings, except winnings from horse and dog racing, which are subject to tax under chapter sixty-two and which are subject to withholding under section thirty-four hundred and two (q) of the Internal Revenue Code shall deduct and withhold from such payment an amount equal to five per cent of such payment, except that such withholding for purposes of this chapter shall apply to payments of winnings of $600 or greater notwithstanding any contrary provisions of the Internal Revenue Code, as amended from time to time. For purposes of this chapter and chapter sixty-two C, such payment of winnings shall be treated as if it were wages paid by an employer to an employee.

[12] The Massachusetts Gaming Commission regulates simulcasting for horse racing, harness racing, and dog racing. Effective January 1, 2010, dog racing in Massachusetts is prohibited. See G.L. c. 128A, § 14E. However, under the regulation of the Massachusetts Gaming Commission, simulcasting in Massachusetts of dog racing taking place outside of Massachusetts is permitted.
[13] Although not subject to federal withholding, the following winnings must be reported to the Internal Revenue Service on Form W2-G:  (1) Winnings (not reduced by the wager) of $1,200 or more from a bingo game or slot machine, and (2) Winnings (not reduced by the wager) of $1,500 or more from a keno game. If a winner fails to provide his or her TIN, the winnings are subject to federal withholding.
[14] In contrast to Massachusetts law, Code § 3402(q)(5) provides an exemption from federal withholding on winnings from a slot machine, keno or bingo in a case where the winner provides his or her taxpayer identification number (TIN).
[15] G.L. c. 62B, § 2 (seventh paragraph, third sentence).
[16] G.L. c. 62B, § 2 (seventh paragraph, fourth sentence).
[17] If winnings are to be split among several winners, winners are reported on Form 5754, Statement by Person(s) Receiving Gambling Winnings.
[18] G.L. c. 62B, § 5 (first paragraph).
[19] G.L. c. 62C, § 5.
[20] G.L. c. 62C, § 8. See also Department of Revenue Directives 93-5, 94-10, and 97-3 which set out the reporting requirements for filing annual information reports.    
[21] G.L. c. 62C, § 8 (first paragraph), as amended by St. 2011, c. 194, § 30.
[22] G.L. c. 10, § 38 provides for the licensing of certain organization to conduct beano games, raffles or bazaars. The Act does not change the longstanding requirement under G.L. c. 62C, § 18 that every organization operating or conducting a game under G.L. c. 10, § 38 must, within ten days after such game is held, file an information return with the Commissioner containing the names and addresses of all persons receiving prizes over $500 in such game and the amount of every such prize.