The U.S. Department of the Treasury issued proposed regulations addressing two changes affecting the gaming industry and taxpayers: (i) an increase in the information reporting threshold for certain payees, including gambling winnings, and (ii) the implementation and clarification of new statutory limits on wagering loss deductions. The proposed rules reflect recent legislative changes enacted as part of the One Big Beautiful Bill Act.
Included in the proposed regulations is the adjustment of reporting thresholds for certain information returns, including Form W-2G (Certain Gambling Winnings). Beginning in 2026, the threshold for reporting certain gambling winnings is increased to $2,000, with future adjustments indexed for inflation. This represents a substantial increase from long-standing thresholds, and is intended to reduce administrative burdens on payors while modernizing the reporting regime. The proposal also aligns regulatory language with statutory updates and existing IRS guidance, including rules governing aggregation of wagers and the determination of proceeds in pari-mutuel betting contexts.
For operators, the change will require updates to internal systems, payout tracking, and compliance procedures. For taxpayers, the practical effect may be fewer information returns issued for smaller winnings, although all gambling income remains fully taxable regardless of reporting thresholds. The proposed regulations also implement recent statutory changes to IRC §165(d), which now limit the deductibility of wagering losses to 90% of losses, up to the amount of wagering gains, beginning in 2026.
This represents a departure from prior law, under which taxpayers could generally deduct 100% of their wagering losses (subject to the limitation of wagering gains). However, the new limitation has the potential to create “phantom income”, taxable income in excess of a taxpayer’s net economic gain. For example, a taxpayer with $100,000 in winnings and $100,000 in losses would now be limited to deducting $90,000 of those losses, resulting in $10,000 of taxable income despite breaking even economically. Taken together, these changes ease reporting burdens on payors while simultaneously tightening the rules governing loss deductions for taxpayers.
From a compliance perspective, gaming operators should evaluate updates to information reporting systems and thresholds, adjustments to withholding and documentation procedures, and coordination with evolving IRS forms and instructions. Gamblers should carefully consider the impact of the new loss limitation on effective tax rates and recordkeeping practices. Although these rules are subject to the open comment period before finalization, taxpayers and industry participants should begin preparing now. For more information, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.