How Do Online Slots Pay Out
Introduction to Taxable Jackpots
One of the most popular slot machine questions on Google searches is: How do slot machines pay out taxable jackpots? I’ve assumed this question is about the mechanics of the payout process. A different upcoming post deals with explaining when slot machines pay out.
- Over time and millions of spins the game will pay out 98%. Slots would not be any fun to play if every time you put in $100 you got exactly $98 out. While you may have lost your bankroll some other players would have walked away winners - luck is the main factor effecting slot players.
- Gambling authorities are there to ensure that the gaming industry is operating correctly.
Your favorite online slot has a payout percentage of 90%. On average, the machine will return $90 in winnings to the player. It's easy to see that a higher payout percentage favors the player. On most live slots with three-mechanical reels, you get a higher payback percentage by betting max coins. On most video slots, including live slots and video slots, covering all the paylines with a minimum bet per line yields the same percentage as betting the max. Let’s look at the situations separately, with three-reel mechanical games first. They configure the progressive slot machine games to “donate” a small percentage of each page (maybe half a penny) to the jackpot. This is money that the casino irretrievably sets aside for the next big jackpot payout. The transaction is handled electronically and automatically by the machines.
Slot machines are special-purpose computers, like a lot of equipment found in our lives. Specifically, standard tools are televisions, electronic watches, gas station pumps, cash registers, bank ATMs, automobiles, baby monitors, and the list goes on and on.
Each of these devices has one or more computer microprocessors, visual display, audio speaker, and some may also have a way to accept and/or dispense money either physically or virtually online.
Beyond controlling the multiple interfaces to and from the player, the computer within a slot machine also manages the odds of a player winning.
At its core, a pseudo-random number generator (PRNG) is a calculation. This PRNG is an element of the computer programming algorithm used by slot machines.
PRNGs (or more commonly RNGs) determine the outcome of a player’s bet based on the pre-determined odds of winning as set by the casino operator within the limited options provided by the slot machine manufacturer.
As previously mentioned elsewhere, winning a jackpot involves using the PRNG twice:
- To determine if a jackpot is won
- To determine how much was won
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The Slot Machine Gambling Process
Once a player selects a specific slot machine, that machine operates to accept or reject the inserted cash, ticket voucher, and reward card.
Next, it accepts the player’s selection for denomination amount and amount of credits to be bet, although it will merely reject one or both settings if insufficient funds are available to make such a bet.
When the bet is placed, the machine immediately selects the latest random number generated by its RNG to determine the outcome of the bet and well as updating the players club card with the points earned for placing the bet.
At the end of this process, the machine turns the reels to show the outcome of the bet. See below for this player-machine sequence of events.
During slot machine gambling, a sequence of actions and reactions take place between the player and machine. The player:
- selects a specific machine, inserts money in the form of cash or ticket voucher
- chooses from the denominations available
- chooses the number of credits to bet
- places a bet
- observes the results of the bet including any bonus round
- receives winnings from the bet (if any)
- then, either:
- leaves the machine empty handed
- cashes out any remaining funds and leaves with a ticket voucher
- continues playing the machine.
The player may choose to insert a player card at any time before or during play, then later remove it before leaving the machine.
Jackpot!
Between determining the outcome of the bet and turning the reels, the machine executes programming code that sets the reels.
The reels turn in a way the machine’s game designers consider most entertaining to the player – such as stopping on reel symbols for non-wins which are next to the symbols for sizable jackpots.
As mentioned, the bet’s outcome is determined when the bet is placed, not when the reels stop moving, despite the entertainment value derived by the player when observing the “action” of the slot machine.
In the event of a win, the machine executes further programming to activate sequences of lights and sounds while updating the information display for the player, which is referred to as a roll-up.
Now What? – The Jackpot Pay Out Process
If a jackpot less than the taxable limit is won, slot players can simply proceed with continuing to play or cash out from that slot machine. The current taxable jackpot limit is $1,200 in the United States.
Meaning, if you have a win of $1,200.00 or more at a slot machine, there is an immediate tax bill resulting in an IRS Form W-2G. If you have a win of $1,199.99 or less, there is no immediate tax bill.
Jackpots that require immediate payment of taxes results in the slot machine locking up.
Many, many slot players have been surprised by their slot machine locking up when a taxable jackpot is won. It can only be unlocked by a casino employee, a slot attendant.
Whether a casino is old or new, a slot attendant will arrive shortly to administer a hand payout. During a hand payout, a slot attendant
- collects personal identification sufficient to both complete a tax form as well as any other state-required documentation
- performs the hand payout (if they have adequate cash on hand)
- unlocks the machine to allow the player to continue.
If the attendant is not carrying enough cash with them, or if the player wishes to have a cashier’s check instead of a cash payout, the slot attendant leaves the player with a receipt and returns a short while later with the check or cash.
If the attendant leaves, they typically unlock the slot machine beforehand to allow the player to continue betting while waiting for the slot attendant to return.
Summary of Taxable Jackpots
The most important thing to remember about winning a jackpot is to make sure you’ve brought your government-issued I.D. If you don’t have it, then you cannot receive a taxable jackpot.
And, no, your friend sitting next to you cannot claim the jackpot for you – the eye in the sky knows it’s your winnings and not someone else.
The second thing to be aware of is what is or is not a taxable jackpot, a single win of $1,200 or higher. Many people have never won a taxable jackpot, so it can be challenging to get useful information on this unless you’ve done it more than a few times. But I have.
If the machine locks up, it’s either had an error or you’ve won a taxable jackpot. Being out of paper is a machine error, for example. Either way, a slot attendant will show up shortly to help. For goodness sake, don’t walk away until you know which!
As a final note, as of this writing, a decade ago, casinos moved away from using coins. Nowadays, they use cash, checks, and vouchers redeemable at cash machines and cages.
Slot Machine Payout Chart
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How Do Online Slots Payout
Have fun, be safe, and make good choices!
By Jon H. Friedl, Jr. Ph.D., President
Jon Friedl, LLC