Taxable Talk

Nine individuals came to Las Vegas this past weekend to compete for the championship at the World Series of Poker. Who would be the lucky winner? And who really got to keep the money?

This year’s World Series of Poker concluded late last night at the Rio Hotel and Casino in Las Vegas. The winner of the main event won $8,715,638 but would he actually end up with all that money?

This year we have the first winner ever from Germany. Congratulation to Pius Heinz of Cologne.

First, Mr. Heinz benefits from the US-Germany Tax Treaty. Under that Tax Treaty, gambling income earned in the US is exempt from US taxation. (Without a tax treaty, he’d lose 30% of his winnings to the IRS.) Next, Germany considers gambling to be a use of after-tax (earned) money so for gamblers it’s tax free. (German casinos, however, are heavily taxed: They pay die Spielbankabgabe and other taxes to the German states.) Thus, Mr. Heinz gets to keep all $8,715,638 of his winnings.

Martin Stazko of Trinec in the Czech Republic placed second for $5,433,086. Mr. Stazko is yet another player who thanks the diplomats of his country; the US-Czech Tax Treaty also exempts gambling winnings so he owes nothing to the IRS. It is unclear if gambling winnings are taxed in the Czech Republic. It appears that they may be taxed if you are a professional gambler but are not taxed if you are an amateur. Mr. Stazko has called himself a professional, so we’ll assume he pays the 15% tax rate and will lose $814,963 in taxes.

Ben Lamb, a professional poker player originally from Tulsa, Oklahoma, finished third. Mr. Lamb was the World Series of Poker Player of the Year. The $4,021,038 he won is on top of the $1,332,832 he won previously at this year’s World Series of Poker. Of Mr. Lamb’s $4.0 million, I estimate he’ll owe $1,524,011 to the IRS and $241,268 to the Oklahoma State Tax Commission. Mr. Lamb will owe 37.9% of his income to taxes.

Edit: I have been informed that Mr. Lamb now resides in Las Vegas and has done so for all of 2011. Thus, he will not owe any tax to Oklahoma.

Matt Giannetti of Las Vegas was the fourth place finisher and earned $3,012,700. As a resident of Las Vegas, he doesn’t have to worry about state income taxes. However, the IRS will take an estimated $1,048,642 of his winnings (35%).

Phil Collins finished fifth. No, not that Phil Collins. Although Mr. Collins was named after the famous singer, this Phil Collins is the only married participant and is a professional gambler residing in Las Vegas. He earned $2,269,599 for his finish and will owe an estimated $852,480 to the IRS (38%).

Eoghan O’Dea of Dublin, Ireland finished sixth. Mr. O’Dea was in position to knock out Ben Lamb on Sunday; Mr. Lamb needed one of three eights left in the deck to fall “on the river” to avoid elimination. Unfortunately for Mr. O’Dea, that’s exactly what happened and Mr. O’Dea was crippled and was soon eliminated. The $1,720,831 will likely assuage some of the bitterness of that final eight.

Mr. O’Dea is also thankful that Irish diplomats did a good job with their tax treaty with the United States; gambling income for Irish citizens is also exempt from US taxation. However, gambling income in Ireland is taxable for professionals (there is no tax for amateurs). Mr. O’Dea, a professional gambler, is subject to a tax rate of 20% on his first €36,400; the tax rate is 41% thereafter. I estimate that Mr. O’Dea will owe $695,018 to the Office of Revenue Commissioners (40.4%). That’s the highest percentage in tax of any participant.

Bob Bounahra of Belize City, Belize finished in seventh place. The native of Chicago earned $1,314,097 for his efforts. The only amateur in the final nine, he wished that Belize diplomats were as good negotiators as those in Germany, the Czech Republic, the Ukraine, or the United Kingdom. He loses 30% of his winnings, $394,229, to the IRS. Normally he’d owe the 15% income tax to Belize. However, he’ll likely get a tax credit from his withholding to the IRS so that he is not double-taxed.

Anton Makiievskyi of Dnipropetrovsk, Ukraine earned $1,010,015 for finishing eighth. Another professional gambler, Mr. Makiievskyi doesn’t have to deal with the IRS; the US-Ukraine tax treaty exempts gambling. Unfortunately, gambling income is taxable in the Ukraine. The Ukraine tax rate is based on monthly income: 15% on the first ₴9,410 (the “₴” stands for the hryvnya, the Ukrainian currency), and 17% thereafter. Mr. Makiievskyi will owe an estimated equivalent of $171,656 to the State Tax Service of the Ukraine.

Sam Holden of Sussex in the United Kingdom finished ninth and earned $782,115. The US-UK tax treaty exempts gambling so he loses nothing to the IRS. And like Germany, the United Kingdom currently does not tax gambling winnings of players so he loses nothing to HM Revenue & Customs. (As an aside, I like the old name, Inland Revenue, much more than the current name.)

Here’s a table summarizing the tax bite:

That’s a total tax bite of 19.45%. Interestingly, last year’s tax bite was much higher (42.99%). That’s because last year every participant at the final table was subject to taxation; this year, two individuals are exempt.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Thanks to tax treaties and how Germany and the United Kingdom treat gambling winnings, this year the taxman wasn’t the big winner at the World Series (the IRS finished second). Still, consider that if Mr. Lamb won he would have finished second to Mr. Heinz in net winnings: Mr. Lamb would have kept only $5,412,349 of the $8,715,638 the winner received.

So congratulations to the winners. Just remember that a winner—perhaps the biggest winner of all—is the taxman. As we all know the house always wins.