US Casino Tax Recovery for Canadians
Dec 12, 2018
If you win a US gambling jackpot across the border you may be in for a surprise because although gambling winnings are not taxable here in Canada they are in the US, at a rate of 30 percent. US federal withholding tax automatically kicks in whenever a gambler wins $1,200 or more in a jackpot payout. The 1042-S form is given to US non-resident jackpot winners so they can file to recover their withheld US gambling taxes from the IRS.
Several games, including blackjack, roulette, baccarat and craps are exempt from withholding tax. Winnings from slot machines, which keep track of players’ activities via a players card or formal poker tournaments that include player buy-ins are not exempt and would have the tax withholding applied.
To be eligible for a refund, gamblers must keep an accurate record of their play to match wins against losses. This can be done using win/loss tax statements, betting slips, tournament buy-in receipts, lottery tickets, receipts from cashing cheques at the casino, ATM withdrawal receipts (preferably in casinos) and bank / credit card statements. Poker players should keep their buy-in receipts from tournaments and a diary of money won and lost in cash games in the USA.
According to the US tax code and because of a bilateral tax treaty between Canada and the United States, Canadians are eligible to recover their withheld US gambling taxes as long as they can show US gambling losses to offset their US gambling winnings. So it’s important for you to keep track of your gambling activities.
Example:
You go into a US casino, put a dollar into a slot machine and win $10,000 and 30% tax, $3,000 is withheld right there. To get this $3,000 back you’d need to show at least $10,000 in U.S. gambling losses to recover all of the withheld tax. If you did not lose any money gambling during the tax year you were taxed, you will not legally be eligible to recover any of the taxes.
Say in the same case as above you lost $5,000 gambling in the US throughout the balance of the year, then you could offset your $10,000 casino win and recover $1,500 of the $3,000 US gambling tax.
You must have the gambling losses or more importantly the proof of gambling losses to write against your jackpot(s). If you do not and you’re audited, the claim will be denied and you could end up owing the Internal Revenue Service (IRS) penalties for misrepresenting your claim.
So it’s important to know Canadians (and other US non-residents with favorable tax treaties) can get back US gambling taxes on casino jackpots but as you can see above, it’s important to pay attention to how you go about getting your casino tax back. Full disclosure to your tax representative and the US tax authorities is a prerequisite in this regard. It’s a necessity to successfully recovering as much US casino taxes as possible.
Of course the above is not all one must worry about in terms of the entire process. There’s still the tasks of getting a US tax number (ITIN) and preparing the tax return (1040NR) but we’ll cover these US gambling tax issues in other articles. That said, the above understandings are at the core of what foreign US gamblers should know.
If you’d like to know more about how Canadians can recover their US gambling taxes check out our IRS Tax Information page or simply contact us to discuss the subject in greater detail. Check out our Facebook page for more information.
