In my previous post, I described a chop that happened at the final table of the Friday noon tournament (the Friday tournament final table was held on Saturday) at the WSOP circuit event currently being held at Harrah's Casino Tunica. You can see the final standings and the exact payouts if you click here.
Let's review: When they were five-handed, they chopped the prize pool. The rumored chop was (about) $26,000 for the first four places (they were all about the same in chips) and $10,000 for a short-stacked fifth player. In my post I asked what was wrong with this. Several readers made good comments, but none of them hit on what I was trying to get at.
When you finish a WSOP tournament, if you finish "in the money," you have to sign for first place, second place, etc. and that creates what is called a tax event. Whoever wins, for example, signs for $56,860 and also gets a ring. It doesn't matter that he only gets $26K (the agreed chop facilitated by Harrah's), he's still responsible for taxes on 58 grand and change. That's what he signs for, and, next January, he'll receive a W2-G tax form for that income which is reported to the IRS.
Once they agreed on 26K each, it would actually be to each player's advantage to be the next one to bust out! They would sign for fifth place money (which was $5,687) and that would be their tax liability.
Things can be absurd. Here's a far-out example: If the short stack came back and won, he would have to sign for the $58+K. They immediately withhold 3% for Mississippi state tax (which would be around $1700. Then on what's left, he would owe (let's guess-timate) 20% federal taxes for another $11,000 or so. Between the two, this is more than his cut of the prize pool based on the chop.