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ITG FAQ #6 Answer-What are the withholding requirements for distributions that are made per a Revenue Allocation Plan (RAP)?

The first step is to identify the source of funds used for the distribution.  Unless the source of funds is specifically exempt from taxation, the amounts that make up the distributions to tribal members are taxable.

Which funds get reported on Form 1099-Misc?  Distributions could be derived from many sources, including the profits from a tribal business other than a Class II or Class III gaming operation, interest income on investments, or rental payments from tribal lands.  All these payments require a tribe to prepare a Form 1099-MISC

When does a person receive a Form 1099-Misc, Statement for Recipients of Miscellaneous Income?  If a person receives $600 or more in 1 calendar year from the same source, that amount must be reported on a Form 1099, and that Form 1099-Misc. must be provided to the individual.

It is only the amount distributed from NET GAMING REVENUE that is subject to withholding.  The Internal Revenue Code provides that “Every person, including an Indian tribe, making a payment to a member of an Indian tribe from the net revenues of any Class II or Class III gaming activity conducted or licensed by such tribe, shall deduct and withhold from such payment a tax in an amount equal to such payment’s proportionate share of the annualized tax.”  The amount to withhold is provided in Withholding Tables found in IRS Publication 15-A, Employer’s Supplemental Tax Guide.

If the Indian tribe anticipates making a distribution of any kind, the tribal members’ Social Security number is needed by the Indian tribe before the distribution is made.  If an Indian tribe does not know a tribal member’s Social Security number at the time of distribution, the distribution is subject to “backup withholding” (at 28% in 2009). 

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Page Last Reviewed or Updated: 02-Aug-2016