3 people win a betting jackpot under one persons SSN. Federal taxes were deducted and remaining $ was split equally. How is this properly reported between the 3 people?

[Opus 17]

Person B and C can simply report the gambling income without paperwork.  Person A is going to have a problem because, if they report 1/3 the amount on the W-2G, the IRS will send a mis-match letter, and there is no way to deduct the other 2/3 as an expense if person A reported the entire amount.

I am not an attorney or enrolled agent, so this is only my amateur recommendation.  Person A needs to write a letter describing the arrangement,  and have it signed by all 3 people.  The letter should describe that the betting was a joint arrangement, it should say that all three bettors acknowledge responsibility for 1/3 the amount and agree to report 1/3 the amount on their tax returns, and it should include the names, addresses, and social security numbers of all 3 bettors.  All three bettors should sign the letter.  Person A reports 1/3 the amount, rather than the whole amount of the W-2G.  When the IRS sends its mismatch letter (probably a CP2000 notice), person A will write a letter back to the IRS explaining the arrangement and including a copy of the signed agreement.

If the amount is large, you may want to pay for professional advice, especially if you are person A.

[George1111]

Thank you for the input. If you are person B or C (which I am) and you report your portion of the income how do you report (or let the IRS know) that this specific portion of the income already had the federal tax withdrawn from it but under person A's name?

[Opus 17]

---

@George1111 wrote:

Thank you for the input. If you are person B or C (which I am) and you report your portion of the income how do you report (or let the IRS know) that this specific portion of the income already had the federal tax withdrawn from it but under person A's name?

---

That's a part of the problem I missed in my first answer.  There's no way to do that that I know of.  I suspect it was a big mistake to not have the payor issue 3 W-2Gs.

I think you need professional advice.  It might be necessary for person A to report and pay tax on the entire amount of the winnings.  If the withholding was insufficient, persons B and C send some money to person A to cover the shortfall.  If there was excess withholding, person A sends some money back to person B and C.

I can't think of any clean solution to your problem, sorry.

[Critter-3]

Since all three of you did not go in and do a joint claim so the winnings could be split three ways along with the withholding.... Then here is my suggestion.

The person who handed in the ticket and who social security number the winnings were reported in will file a return with all the winnings and all the withholding.

First that person completes his return without the winnings and notes the bottom line. Then that person adds the winnings and the withholdings and again notes the bottom line. Then the difference in the bottom line is what is a tributed to the gambling winnings. Divide that by three and have the other two pay their share to the person who's reporting the gambling winnings. This is the simplest way to fix this situation and keep the IRS from sending anybody stupid letters in the future.

[Hal_Al]

“In general, the IRS only requires you to report income that is yours. If lottery winnings you receive are split with other winners and you are the only person who receives a W2-G form, which shows the entire taxable portion of the lottery prize, the IRS expects you to report the whole prize on your return. If this happens and the winnings were really split between you and other winners, you have the option of reporting only your portion. If you do this, you also need to attach a statement to your return explaining that you only received a portion of the prize. On your statement, you need to list the amount you received and provide information about the other winners who received part of the winnings as well as the amounts they received. The IRS then checks the returns of the other people to see if they also claimed their portions. If the other winners do not report their prize, the IRS may require you to claim the whole amount, as shown on the W2-G form you receive.”

Reference: https://finance.zacks.com/can-lottery-winners-split-winnings-tax-returns-8894.html

 There is no good way to split the withholding. That has to all go on Person A’s tax return.  So, for example, you have a $9000 prize and $2000 was withheld for tax.  You had $7000 to split. B & C get $3000 each and A only gets $1000.  But A gets the other $2000 credited to his tax return, so he effectively gets a total of $3000 too.  So, it looks like A owes B & C some more money at this time, if you originally split the $7000 equally.

As others have said, persons B and C  simply report the $3000 gambling income without paperwork.  It goes on line 8 of schedule 1.

If I were person A, I would enter the $9000 from the W-2G.  Then I would enter a minus (-) $6000 on line 8 of Schedule 1* and call it "nominee recipient adjustment for gambling winnings".  I would mail in my return and attach a statement.

*  In TurboTax (TT), enter at:

- Federal Taxes tab

 - Wages & Income

Scroll down to:

-Less Common Income

      -Misc Income, 1099-A, 1099-C

       - On the next screen, choose – Other reportable income -  Answer yes to Any other Taxable Income -On the next screen, Enter the number with a minus sign (-) in front.  Briefly explain at description.

[HeatherHA33]

The person who claims the ticket and pays it to the others will fill out form 5754 and turn it in to the lotto commission or other payer of the prize when the prize is claimed. The payer will use it to issue W-2G forms to each winner.  If it wasn't split up front then you can still claim only your portion and attach a statement to the return showing the information and allocations to each person. It's better to split it when the ticket is originally cashed as you are relying on the other members of your group claiming their portion otherwise you can find yourself in a mess with the IRS. It's probably best to seek advise from a professional.