In a very informative and interesting article published by Russ Fox (of Clayton Financial and Tax of Las Vegas, NV & Bethesda, MD) the author plants a question which most of us have never even thought about or have simply chosen to ignore: what exactly is the tax situation for the winners of the World Series of Poker and how much do they actually get to keep from their winnings? Below we'll analyse the situation for the WSOP winner Ryan Riess, runner up Jay Farber and the other top 7 places in the tournament.
In the United States all gambling winnings are taxable and this applies to both professional and amateur poker players. Since Nevada doesn't have a state income tax, Ryan Riess will not have to pay any taxes on a state level, but he will have to fork out almost $3.5 million in taxes to the IRS in federal income and self-employment taxes. That's 42% taxes and a sizeable chunk of the $8.3 million plus he won from the tournament.
As for Jay Farber, the amateur player who came in second and took home almost $5.2 million, he will not have to pay self-employment tax since he is technically an amateur player and not a professional player. He will however have to pay an approximate 39% taxes on his winnings, which translates to a staggering $2.02 million.
Amir Lehavot, professional poker player from Weston, Florida and third place WSOP winner, won $3.72 million before taxes and will have to pay the government over $1.5 million in federal taxes. Even if he doesn't have to pay state taxes, this is almost half of his total pre-tax winnings.
In fourth place is Sylvain Loosli, a French citizen who resides in London and who took home $2.8 million in winnings. Mr Loosli is perhaps the luckiest (or smartest) player of them all since he is the only one of the November Nine who will not have to pay any taxes at all. The United Kingdom doesn't tax winnings generated from legal gambling activities, not even for professional gamblers or poker players. Also, the United Kingdom and the United States have a tax treaty excempting UK residents from paying US taxes. So even though Sylvain Loosli came in fourth place at the WSOP, he is taking home the full winning amount of $2,792,533.
Fifth runner up and professional poker player from sacramento, California, J.C. Tran, won $2.1 million but will unfortunately have to pay the highest tax amount of all American players at the final table. Mr Tran will have to fork out 47.56% in taxes with a 13.3% marginal tax rate for California taxes and 39.6% in federal and self-employment taxes. In total, J.C. Tran stands to lose $1 million in taxes out of the $2.1 million he won at the tournament.
Coming in on sixth place was Marc-Etienne McLaughlin of Canada, who will probably have to pay up to 30% of his WSOP earnings to US tax withholding and some more on top of that to Canadian and provincial tax authorities. In seventh place, Dutchman Michael Brummelhuis who won $1.22 million, will have to pay 29% taxes to Dutch authorities which translates to $355,353. Nevertheless, he is lucky since the US-Netherlands tax treaty excempts him from paying taxes in the US.
On eighth place is Mr David Benefield from New York and a former poker pro who took home $944,650 in winnings. He won't have to pay self-employment taxes but he will have to pay state and city income taxes which sum up $437,201 or 46%. Finishing in ninth place, Mark Newhouse from Los Angeles and a professional poker player won just $733,224 in July and didn't earn anything additional to this amount in November. His tax deduction will amount to about 44% or $322,879. Below a copy of the tax expenses of all November Nine players and the winner leaderboard before and after taxes.
Taxes paid to US and international tax authorities:
|Amount won at Final Table||$25,932,167|
|Tax to IRS||$8,626,311|
|Tax to Belastingdienst (Netherlands)||$355,353|
|Tax to Franchise Tax Board (California)||$321,611|
|Tax to Canada Revenue Agency||$312,628|
|Tax to New York Dept. of Taxation & Finance||$78,394|
Total taxes paid out to tax authorities: $9,642,011 or 37.18%.
Table depicting winner leaderboard with prize amounts before and after taxes:
|Winner||Before-Tax Prize||After-Tax Prize|
|1. Ryan Riess||$8,359,531||$4,880,713|
|2. Jay Farber||$5,174,357||$3,147,830|
|4. Sylvain Loosli||$2,792,533||$2,792,533|
|3. Amir Lehavot||$3,727,823||$2,178,623|
|5. J.C. Tran||$2,106,893||$1,104,916|
|7. Michael Brummelhuis||$1,225,356||$870,003|
|6. Marc-Etienee McLaughlin||$1,601,024||$808,089|
|8. David Benefield||$944,650||$507,449|
|9. Mark Newhouse||$733,224||$410,345|
So after all the state, federal and self-employment taxes, the real winner of the 2013 WSOP tournament was clearly the Internal Revenue Service of the United States. The tax authority will earn $8,626,311 in taxes for the treasury. This amounts to more than the pre-tax first place prize of $8,359,531 and much more than the after-taxes first prize of $4,880,713. It seems the IRS is the only one with a foolproof, fail-safe system for always winning in poker.