Withholding and Backup Withholding

When paying and reporting gambling winnings to prizewinners, you must withhold income tax from those winnings, if required. Withholding is the deduction and remittance of Federal income tax from the amount won.

There are two types of withholding: “regular” and “backup.” In both cases, the amount withheld is deducted from the net prize. So that means you deduct the wager first and calculate the withholding deduction second—never the other way around.