In california, bad beat jackpots (at least from the Lucky Derby) are subject to withholding if it is for over $5,000. W-2G forms are issued for all tournament wins and bad beat jackpots if $600 or over--just as you said. But at least now I think I understand why.

You asked my preference regarding withholding. Personally, I care less as either the taxes are withheld or I include it in my quarterly estimated taxes. One way or the other, taxes will be paid.

The big problem, as I see it is that if withholding is not taken immediately, some of these big stake gamblers will have lost all there winnings prior to them paying the tax and the IRS will never get their due. Example is the youngster who won the World Series a few years ago and was found dead and broke in a motel from an overdose or something like that just months after the big win of a million or so.