Adapting Slot Machines to New IRS Jackpot Threshold Could Take Months
The practical work of changing thousands of slot machines to the new $2,000 IRS reporting threshold will likely take weeks or months.
LISTEN TO THIS ARTICLE:The federal tax revision that raised the W-2G reporting minimum for slot jackpots from $1,200 to $2,000 took effect on Jan. 1, 2026, but the mechanical and regulatory work needed to reflect that shift across U.S. casinos is far from simple. The Internal Revenue Service published draft guidance in mid-December on how casinos should issue W-2G forms and handle withholding for jackpot payouts, but implementation falls to manufacturers, casino operators and state and tribal regulators – each with their own technical and procedural hurdles.
For players and operators trying to understand how the higher reporting threshold affects payouts and withholding, a detailed gambling tax calculator can help clarify how wins are reported under the updated rules.
Daron Dorsey, president and CEO of the Association of Gaming Equipment Manufacturers (AGEM), said the industry faces a complex, multi-step process. "Operators, regulators, and suppliers all play a part in this… but the solution will be different in Jurisdiction X vs. Jurisdiction Y vs. Jurisdiction Z. The entire first-time process will probably take some weeks and months."
Implementation Challenges Across the Casino Industry
At the equipment level, suppliers must decide how to command individual machines to lock and trigger a manual payout and tax handling procedure when a win reaches $2,000. That command could vary between manufacturers – and even between game families from the same vendor – because each company maintains its own legacy technology stack. "Every manufacturer/supplier has a technology stack that is built on decades of software and base versions and game versions", Dorsey noted, underscoring the effort required to ensure any change is compatible across all configurations without introducing unintended consequences.
Those unintended consequences carry regulatory risk. In many jurisdictions, modifying game software can be treated as creating a new game version, a designation that would require testing by independent labs and re-authorization by gaming regulators. Those processes add time and cost, and they shape how swiftly a supplier can push an update into an operator’s floor systems.
On the casino side, operators often run machines from multiple vendors and will need to coordinate installation windows to minimize downtime. Some operators may elect interim workarounds – such as instructing staff to manually restart a machine that locks after a jackpot in the $1,200–$2,000 band – rather than await a software push to every cabinet. Regulators also vary: some agencies will allow operators to treat the IRS threshold as the de facto trigger, while others will insist on documented software changes or formal approval steps.
Pennsylvania provides an early example of regulatory flexibility. With more than 24,000 slot machines across 17 casinos, the Pennsylvania Gaming Control Board informed operators on Dec. 30 that it views the $1,200 threshold reference as intended to align with the IRS and that operators may adopt the $2,000 trigger point this year. That stance reduces immediate technical pressure for operators in that state but does not remove the need for broader, standardized updates.
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Steps for Operators and Regulators
Industry leaders say cooperation will be critical. Dorsey pointed to the collaborative response during the COVID-19 pandemic – when suppliers, operators and regulators worked together on unprecedented closures and machine shutdowns – as a model for this update. "You couldn’t comply with all of the rules and requirements on timelines and notifications. Everybody was working in a collaborative environment to try to get through", he said.
Practical measures operators and suppliers should prioritize include: inventorying affected cabinets and vendor software versions; coordinating phased update schedules to reduce floor impact; validating updates against every regulated build to avoid triggering lab retesting; and communicating clearly with state and tribal regulators about timing and safeguards for tax form issuance. Regulators can help by issuing temporary enforcement guidance or clear procedural paths for approved updates.
For the industry, the $2,000 threshold is unlikely to be the last adjustment: the law ties future changes to inflation. Executives say this round will create a repeatable process that should shorten implementation windows in years to come. "We all want the same thing, and we’re all trying to work through it together," Dorsey said. "We have other issues that are much bigger headaches – unlicensed, illegal operations and those kinds of environments – for us to work through."
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