Tax Refund Casino Winnings

Gambling, Casino Winnings and Taxes: The Canada-U.S. Tax Treaty

The good news is that there is a casino tax refund for Canadians. The bad news is that you need to prove losses or related expenses to qualify for it. You also need to go through a significant amount of red tape, which includes applying for an American tax number. The tax rules for gambling winnings are the same across Canada. If you have winnings from blackjack, baccarat, craps, roulette, or big-6 wheel, and the casino gave you a Form 1042-S (Foreign Person’s US Source income subject to withholding) showing that tax was withheld, enter these winnings in column d of line 10, with a tax rate of zero%. You can claim a refund of the tax.

• Lottery winnings are considered ordinary taxable income for both federal and state tax purposes. That means your winnings are taxed the same as your wages or salary. And you must report the entire amount you receive each year on your tax return.
• Withholding on Gambling Winnings. Gambling winnings are subject to withholding for federal income tax at a rate of 24% as of 2020 if you win more than $5,000 from sweepstakes, wagering pools, lotteries, or other wagering transactions, or anytime the winnings are at least 300 times the amount wagered.

We charge a flat low rate, not a % of your refund, quoted upfront, which remains unchanged 95% of the time. Any changes to our fee as result of unexpected additional work will be discussed with you first.

Tax Refund On Us Casino Winnings

Claiming Gaming & Casino Tax Refunds for Over 15 Years. We’ve been claiming gaming and casino tax refunds since 2003.
Gaming & Casino Tax Refund Eligibility:
– You are not a US citizen, Green card holder or resident
– Won taxable gaming, gambling income from specified gaming activity within the last three years.
– You have been issued an IRS Form 1042-S by the casino (the casino usually keeps up to 30% of your winnings as withholding tax and sends it to the IRS)
– You have either have an ITIN (US tax identification number) or we can apply for one on your behalf.
– You have qualified gaming losses (in accordance with the 1996 Canadian/US Tax Treaty).
The IRS rule allows you to go back three years to claim a refund. Taxes on wagering winnings prior to this period are statute-barred from any recovery

Canadian residents who go to Las Vegas and other USA venues for gambling may end up to be lucky and win a large amount of money. Is the gain taxable in the U.S.? Are gambling losses deductible against the winnings? Does IRS require the Casino to withheld taxes? The answer is yes to all three questions.

However, the good news is that under the Canada-U.S. Income tax treaty (Article XXII) Canadian residents are entitled to claim any U.S. wagering losses up to the amount of U.S. gambling gains for the year, using the same rule that would apply to U.S. citizens and residents. For U.S. citizens and resident aliens i.e. Green Card holders, gambling, betting, and lottery winnings or gains are usually taxable and must be declared when filing their 1040 income tax return, but gambling gains can be reduced by deducting gambling losses to the extent of their gambling gains. Generally for non-US gamblers, U.S. tax is withheld on any gains at source, but the winner cannot deduct any gambling losses to claim a refund of taxes withheld from gambling gains. But Article XXII has changed all of that for Canadian gamblers. In order to recover gambling taxes withheld, Canadian residents will have to file form 1040NR, U.S. Non-resident Alien Income Tax Return under provisions of the aforementioned United States-Canada income tax treaty.

Gambling winnings taxation laws are significantly different between Canada and the U.S. In Canada, all winnings arising from any kind gambling including casino plays, lottery, are generally exempt from taxable income provided it can be established that winnings are clearly not related to an office, employment, or property. With very few exceptions, Canadian income tax code does not treat betting and gambling as a dealing in any kind of trade or business activity. For now, Canadians winning gambling gains at home are entitled to get all they win, with no income tax consequences.

In the United States, taxation of gambling gains is treated totally different. Under U.S. law, gambling winnings of U.S. persons over $1200 excluding winnings on blackjack, baccarat, craps, roulette, and the big-6 wheel are considered taxable income. Whereas for Non-resident aliens including Canadians, their gambling winnings are subject to 30% withholding of the total win at source. For example if you win $1600, you’ll be walking out with only $1120. The more you win, the more you’ll lose as a result of gambling withholding taxes.

In 1996 Article XXII of the Canada-U.S. Tax Treaty was signed between the two countries. Under provisions of the Treaty, Canadians are eligible to file US income tax (1040NR) and claim their U.S.-source gambling losses from their U.S.-source gambling winnings, and recover casino taxes withheld at source and receive a refund. Total losses deducted cannot be more than total winnings.

In order to file 1040NR to recover casino tax refund, you need to obtain or already have a valid Individual Taxpayer Identification Number (ITIN). U.S.1040NR returns are filed annually and will cover your entire gambling wins and losses for that year. You are advised to seek professional gambling tax recovery advice, as this can be a tedious and complicated process.

To qualify for casino gambling tax recovery under Article XXII of the Canada-U.S. Tax Treaty, you must be able to prove all of your U.S.-related gambling losses. Good record keeping showing all wins and losses made in the U.S., including dates, times, locations, and amounts won and lost is very important. You should keep any statements issued by the casino, wager tickets, casino credit records, and bank withdrawal statements.

Gambling Winnings and US Taxes Refund for Canadians
Lost and Wone Money When Gambling in the United States? How Canadian Residents Can Get a Refund of 30% Withholding Tax?

We can help you get it back! Here it is how:

– File US tax return 1040NR

– Obtain U.S individual taxpayer identification number (“ITIN”) if you do not have one or the one you have has expired.

– File W7 and required documents with your 1040NR

– Make sure you keep record of your losses (bank withdraws, tickets, etc…)

According IRS Publication 515, no tax is imposed on nonbusiness gambling income a non-resident alien wins playing black-jack, baccarat, craps, roulette, or big-6 wheel in the United States. If you were issued form 1042-S and taxes were withheld you might be able to recover part or all of it . Contact Fairtax Business Services.

Tutorial for Canadian Gamblers:

Here is a short tutorial on how to Claim US Gambling Taxes Withheld at source from your winnings from the IRS.
Canadians who gamble and win at any United States casino may be subject to a 30% tax withheld off of their winnings.
According to Canada-US tax treaty it may be possible to ask the IRS (U.S. Internal Revenue Service) to send you some or all of that money back.

Introduction:
Suppose you won some money in a U.S.A Casino say in Vegas. The casino will keep 30% of your total jackpot amount, regardless of your losses (wagers) and will issue you a form called 1042-S, which will be sent by the casino to the IRS. But Canada-US tax treaty allows you to ask the IRS to consider the total amount you spent gambling during the whole year as deductable, resulting in reduced or zero amount of taxes you’d owe.

Example:

You won $5,000 in 2018. You lost $4, 000 in 2018
your net win is $5,000-$4,000= 1,000.
Taxes withheld by the Casino at 30% of $5000: $15, 00.
Your actual winning was 5000-4000 = 1000, 30% of 1,000 = $300.
You can file a 2018 1040NR return in 2019 and ask the IRS to refund you the difference. $15, 00-$300= $1,200

NOTE: Make sure you can provide the IRS proof of any losses you claim. There is always a chance that IRS might select you for an audit at a later date and if you can’t prove the losses you initially claimed you will have to pay everything back plus possible penalty and interest. The only way to legally claim a full refund is if your losses were equal more money than your winnings for the year.

To request a recovery of taxes withheld and get a refund, you must file a US Non-Resident Tax Return (1040NR) with the IRS. And all of all of the following must apply to you:

– A Canadian resident
– Not a US citizen, Green card holder, nor eligible to obtain a US Social Security Number.
– Have both won and spent some money to win in Gambling activities in the US

Filling for Refund:
1- Complete a 1040NR Tax Return
2- W-7 and a certified copy of your Canadian passport if you do not have a valid ITIN number
3- 1402-S issued by the Casino
Mail the package to:

Internal Revenue Service
ITIN Operation
P.O. Box 149342
Austin, TX, USA
78714-9342

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Do you like to gamble? If so, then you should know that the taxman beats the odds every time you do. The Internal Revenue Service and many states consider any money you win in the casino as taxable income. This applies to all types of casual gambling – from roulette and poker tournaments to slots, bingo and even fantasy football. In some cases, the casino will withhold a percentage of your winnings for taxes before it pays you at the rate of 24 percent.

Casino Winnings Are Not Tax-Free

Casino winnings count as gambling income and gambling income is always taxed at the federal level. That includes cash from slot machines, poker tournaments, baccarat, roulette, keno, bingo, raffles, lotteries and horse racing. If you win a non-cash prize like a car or a vacation, you pay taxes on the fair market value of the item you win.

By law, you must report all your winnings on your federal income tax return – and all means all. Whether you win five bucks on the slots or five million on the poker tables, you are technically required to report it. Job income plus gambling income plus other income equals the total income on your tax return. Subtract the deductions, and you'll pay taxes on the resulting figure at your standard income tax rate.

How Much You Win Matters

While you're required to report every last dollar of winnings, the casino will only get involved when your winnings hit certain thresholds for income reporting:

• $5,000 (reduced by the wager or buy-in) from a poker tournament, sweepstakes, jai alai, lotteries and wagering pools.
  
• $1,500 (reduced by the wager) in keno winnings.
  
• $1,200 (not reduced by the wager) from slot machines or bingo
  
• $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager.
  

Win at or above these amounts, and the casino will send you IRS Form W2-G to report the full amount won and the amount of tax withholding if any. You will need this form to prepare your tax return.

Understand that you must report all gambling winnings to the IRS, not just those listed above. It just means that you don't have to fill out Form W2-G for other winnings. Income from table games, such as craps, roulette, blackjack and baccarat, do not require a WG-2, for example, regardless of the amount won. It's not clear why the IRS has differentiated it this way, but those are the rules. However, you still have to report the income from these games.

What is the Federal Gambling Tax Rate?

Standard federal tax withholding applies to winnings of $5,000 or more from:

• Wagering pools (this does not include poker tournaments).
  
• Lotteries.
  
• Sweepstakes.
  
• Other gambling transactions where the winnings are at least 300 times the amount wagered.
  

If you win above the threshold from these types of games, the casino automatically withholds 24 percent of your winnings for the IRS before it pays you. If you cannot provide a Social Security number, the casino will make a 'backup withholding.' A backup withholding is also applied at the rate of 24 percent, only now it includes all your gambling winnings from slot machines, keno, bingo, poker tournaments and more. This money gets passed directly to the IRS and credited against your final tax bill. Before December 31, 2017, the standard withholding rate was 25 percent and the backup rate was 28 percent.

The $5,000 threshold applies to net winnings, meaning you deduct the amount of your wager or buy-in. For example, if you won $5,500 on the poker tables but had to buy in to the game for $1,000, then you would not be subject to the minimum withholding threshold.

It's important to understand that withholding is an entirely separate requirement from reporting the winning on Form WG-2. Just because your gambling winning is reported on Form WG-2 does not automatically require a withholding for federal income taxes.

Can You Deduct Gambling Losses?

If you itemize your deductions on Schedule A, then you can also deduct gambling losses but only up to the amount of the winnings shown on your tax return. So, if you won $5,000 on the blackjack table, you could only deduct $5,000 worth of losing bets, not the $6,000 you actually lost on gambling wagers during the tax year. And you cannot carry your losses from year to year.

The IRS recommends that you keep a gambling log or spreadsheet showing all your wins and losses. The log should contain the date of the gambling activity, type of activity, name and address of the casino, amount of winnings and losses, and the names of other people there with you as part of the wagering pool. Be sure to keep all tickets, receipts and statements if you're going to claim gambling losses as the IRS may call for evidence in support of your claim.

What About State Withholding Tax on Gambling Winnings?

Tax Refund Gambling Winnings

There are good states for gamblers and bad states for gamblers. If you're going to 'lose the shirt off your back,' you might as well do it in a 'good' gambling state like Nevada, which has no state tax on gambling winnings. The 'bad' states tax your gambling winnings either as a flat percentage of the amount won or by ramping up the percentage owed depending on how much you won.

Each state has different rules. In Maryland, for example, you must report winnings between $500 and $5,000 within 60 days and pay state income taxes within that time frame; you report winnings under $500 on your annual state tax return and winnings over $5,000 are subject to withholding by the casino due to state taxes. Personal tax rates begin at 2 percent and increase to a maximum of 5.75 percent in 2018. In Iowa, there's an automatic 5 percent withholding for state income tax purposes whenever federal taxes are withheld.

State taxes are due in the state you won the income and different rules may apply to players from out of state. The casino should be clued in on the state's withholding laws. Speak to them if you're not clear why the payout is less than you expect.

How to Report Taxes on Casino Winnings

You should receive all of your W2-Gs by January 31 and you'll need these forms to complete your federal and state tax returns. Boxes 1, 4 and 15 are the most important as these show your taxable gambling winnings, federal income taxes withheld and state income taxes withheld, respectively.

You must report the amount specified in Box 1, as well as other gambling income not reported on a W2-G, on the 'other income' line of your IRS Form 1040. This form is being replaced with a simpler form for the 2019 tax season but the reporting requirement remains the same. If your winnings are subject to withholding, you should report the amount in the 'payment' section of your return.

Different rules apply to professional gamblers who gamble full time to earn a livelihood. As a pro gambler, your winnings will be subject to self-employment tax after offsetting gambling losses and after other allowable expenses.

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