Ask the Slot Expert: Lowering the W-2G threshold on slot wins

Follow-up to IRS proposal to lower W-2G threshold to $600: In a surprise move, the IRS has decided not to lower the W-2G threshold to $600, but it will instead eliminate the requirement the W-2G altogether, bringing the reporting requirements for slot players in line with those for table games players.

April Fools!

The proposal is still in the comment phase. The American Gaming Association and industry officials are recommending against lowering the threshold.

Here's one reader's reaction to the proposal:

I'm a slot manager at a small casino in the Caribbean after 30 years around Nevada. The tax on winnings here is zero.

I was a big video poker player years ago and will still go a little nuts when I'm back in Nevada. Having said that, I will never play any casino game if I'm getting taxed on $600. This could be the downfall of the slot business in the U.S.

I think that after the government takes its share of my paycheck, I should be able to do whatever I please with the rest without the government getting anything else from me.

I'm getting ready to send the IRS almost $1400 on $6000 in winnings. That's BS.

The government always has its hand out. If you invested your paycheck into stocks, bonds or savings accounts, the government would still want its share of your dividends, capital gains or interest. (BTW, would you have the nerve to call an account with an APR of 0.08 percent "High Yield Savings"?) The government always wants a cut of your income.

Lowering the threshold could actually be a positive development for some players. The jackpots on some machines are $1,199 to avoid triggering the paperwork. Paytables on new machines could be designed with a top jackpot of $599. In order to maintain the same long-term payback as on the $1,199-jackpot machine, the jackpot has to be made more likely to hit, or the lower-paying combinations have to pay more or be made more likely to hit, or some combination of the three options. The lower threshold and the resultant lower jackpot on some machines would be a gift to players who like low-volatility slot games.

It doesn't matter what the threshold is on quarter and dollar video poker machines with "legacy" paytables - the royal flush will trigger a W-2G whether the threshold is $600 or $1200. But if we took a 9/6 Jacks or Better paytable and lowered the royal flush to 599 coins, we can maybe lower the minimum paying hand to 10s or pay more for some of the higher hands or both and still have a 99.5 percent long-term payback. (Of course, the paytable could be adjusted and the long-term payback could end up being 97 percent or 95 percent!)

It's very hard to find video poker with decent paytables at the lower levels today. Last year on my trip to the Rio in Las Vegas, the Jacks or Better machine had a 7/5 paytable for around a 96% return. And you know that you generally earn comps at video poker at half the rate of slots, since video poker is a skill game.

If you're stuck with quarter video poker machines with bad paytables (say one that returns 96-97 percent) and half the comp value, is it better to play a five-line quarter slot machine that gets full comp value?

Is that something you can even figure out since we don't know how much return we get on slot machines? Is there a point where a video poker paytable is so bad that it's better to play quarter slots?

I remember the good old days (almost 20 years ago) when slot clubs were new and video poker earned comps and cashback at the same rate as slots. We really had it good then - especially since full-pay video poker machines were plentiful.

Video poker earns comps at a lower rate than slots today, not so much because video poker is a skill game, but because the long-term paybacks on video poker machines are higher than those on slot machines. Comps are based on returning some percentage of the casino's expected win for your play, so it makes sense to earn fewer comps for video poker action compared to the same amount of action on slots.

You're right that we really need more data to arrive at a definitive answer. We need to know the long-term paybacks on the slots and the comp rates for slots and video poker. Even without that data, I think we can make a guess that will be correct 99.99 percent of the time.

You get such a small return on your action in comps, it is almost always better to play video poker than slots. You just don't earn enough comps to overcome the lower long-term paybacks on slots.

I have an analogy I use to compare comps and payback. Comps are like savings accounts: You get the stated rate as long as your money is in play. Payback, on the other hand, is more like a stock. Sometimes you win, sometimes you lose. In the long run, your results will approach the long-term payback, but there's no guarantee about the results at the end of a session as there is with comps. Just making up numbers, if you get 0.1 percent back on your action in comps while playing $1,000 in action on a 90 percent payback slot, you are guaranteed to earn $1 in comps, but there's no guarantee you will have gotten $900 back. The only advantage of the higher comp rate is that you're guaranteed to benefit from it every time; you may not benefit from the higher long-term payback in any given session.

I saw something interesting in the Nevada section of the Slot Paybacks page on the American Casino Guide site. The payback on quarter machines on the Boulder Strip is about 96 percent. That percentage includes video poker, which increases the average. However, if you go to one of the Boulder Strip casinos (e.g., Boulder Station, Sam's Town) and the video poker pays back about 96 percent, the total paybacks (machine long-term payback plus comps) for slots and video poker might be close.

Send your slot and video poker questions to John Robison, Slot Expert™, at slotexpert@slotexpert.com. Because of the volume of mail I receive, I regret that I can't reply to every question.

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