House Internet gambling bill would require withholding taxes on winnings

The bill would not legalize online gambling, and is meant to offer a tax structure for online gambling assuming that it becomes legal. Reps. Campbell and Frank are known to be working on a bill to legalize Internet gambling.

Gambling winnings are already required to be reported to the IRS under current law.  Assuming online gambling is legalized, the bill would require companies to subject net online winnings to a withholding tax, now 28 percent, in line with current withholding taxes for other gambling winnings.

To help enforce this, companies would be required to provide the names, addresses and tax identification numbers of all players to the government. They would also have to provide information on gross winnings, gross wagers and gross losses on each person for every calendar year, and the amount of tax withheld on these winnings.

The bill also requires companies to tell the government how much has been deposited and withdrawn during the calendar year.

Aside from ensuring tax collection from gamblers, the bill would also require online gambling establishments to obtain a license, and would tax these companies an amount equal to two percent of the deposits they receive each month. The bill stresses that this tax cannot be deducted from the amounts that players deposit in their account, and must be paid for by the company.

It would also give states the option of taxing these companies at a rate of six percent.

McDermott's bill would send a quarter of the federal taxes collected to programs that care for foster or disadvantaged children, and most of the rest would go to the general treasury.

Several Internet gambling sites were seized by the Justice Department earlier this year, after they were discovered to be taking deposits from U.S. citizens illegally. Rep. Joe Barton (R-Texas) is also considering legislation that would legalize and regulate online gambling. Barton's bill is expected to focus on online poker.

-- This story was updated at 3:25 p.m. to note that the bill would not legalize online gambling, and to add other details.

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