Actually, the skill test component of lotteries doesn't circumvent the tax law, it circumvents a Canadian law that would otherwise declare the contest to be an illegal private lottery. (The Canadian government apparently has a monopoly on pure lotteries, so a private business is not allowed to offer a pure lottery to Canadians. A "skill-test" component makes the contest not a pure lottery.) Either way, if a Canadian wins prize money from a pure lottery or from a "skill-test" contest, prizes are exempt from Canadian income taxes. I assume that means that Putnam contest cash prizes are not taxable if Canadians win them.

In the US, however, all prizes (whether government lotteries, casino or poker gains, charity raffle prizes, Putnam prizes, Nobel prizes, game show prizes, MacArthur genius prizes, etc.) are taxable income to the recipient.

And, in fact, such prizes are considered "unearned income" which now means that if a full time student under age 24 wins a prize over 1,800, it will be taxed at the highest marginal rate of the student's parents, rather than at the student's own (usually lower) marginal tax rate.

On the poker front, it should be noted that those 595 dollar winnings in poker are still taxable income to the recipient. It's just that the sponsor of the poker contest is not required to report and withhold tax on gambling wins under 600 per gambling session.

The player, however, is still required to report the gross total of all his winnings on his 1040, whether or not the organizer reported and withheld taxes on them. (He can deduct losses from other sessions, but ONLY if he itemizes deductions, and the amount of deductible losses can't exceed the gross reported gains in any event. The rules are somewhat different if he can establish that he is a "professional gambler," but the burden of proof for establishing professional gambler status are not easy.)

And yes, amateur poker wins are subject to the kiddie tax if the player is a full-time student under 24. There's an asymmetry in the kiddie tax which means that even a player with no net winnings for the year could wind up paying a large kiddie tax on the gross gains and getting a much smaller tax benefit from deducting his gross losses.

Interesting, so these arithmetic bits are there to allow Canadians to play?

Yes, the 595 is still taxable. If it is reported.