The USA taxes all gambling winnings won in this country, both the winnings of its citizens and the winnings of the foreigners who gamble here, like our friendly Canadian neighbors who cross the border to play in our casinos. US casinos withhold tax from all foreigners gambling in this country when paying out hand pays, the winnings they have to report on form W2G. And they withhold a lot! They withhold 30% of any reportable jackpot wins - the ones over $1,200 - regardless of the foreign gamblers’ home country’s rules or rates for taxing gambling winnings. Why do they do this and why do they withhold so much?
Well, for one thing, casinos are required by law to withhold tax in certain instances. They must withhold 28% when a US jackpot winner doesn’t provide and certify his Social Security number on a W9 form. This is called backup withholding. Threatening to backup withhold 28% of a winner’s jackpot is a good way for the casino to encourage the player to provide his SSN for the W2G form. The withholding is shown in box 4 of the W2G the casino gives the US resident, who will claim it on line 64 of his 1040 when he files. Over-withholding from US citizens by the casino is refunded when they file Form 1040 just like overwithholding from an employer is.
Casinos are also required to withhold 30% of reportable winnings from foreigners — slot winnings over $1,200 currently. The foreign gambler can file a non-resident tax return (Form 1040 NR) for a refund from the United States if too much tax was withheld here from his winnings. If he doesn’t bother filing that claim within 3 years, our government still got its share of his jackpot.
There are a lot of companies who will file form 1040 NR for Canadians who had tax withheld in the USA. Their ads pop up on my computer all the time. You can see the 1040 NR form and read its instructions on the internet yourself at IRS.gov. The form seems fairly complicated. The income of the Canadian citizen earned in the United States falls into one of two categories - effectively connected income (such as income from a business located in the US) or non-effectively connected income (which includes gambling winnings.) The instructions direct residents of Canada to use lines 10a — 10c of the Schedule NEC to report their gambling wins and losses. Residents of other countries use line 11. Here’s what the instructions from last year’s 1040 NR Schedule NEC say.
“If you are a resident of Canada who is not engaged in the trade or business of gambling, enter all gambling winnings on line 10a. Include proceeds from lotteries and raffles. Do not include winnings from blackjack, baccarat, craps, roulette, or big-6 wheel. You can deduct your US source gambling losses to the extent of your US source gambling winnings. Enter your gambling losses on line 10b. Enter your net gambling income on line 10c, column (c). If line 10b is more than line 10a, enter 0 on line 10c. A net loss from gambling activities is not deductible.”
That part doesn’t seem too bad. Canadians report their US wins, they subtract their US losses for which they have records. (Remember to keep a diary!) The difference (if any) is the reportable taxable income. Unfortunately Schedule NEC is not all you have to complete. You also have to file it with Form 1040 NR, and that tax return seems to be a rather complicated one. People will want to charge you money to file it for you, probably a lot of money.
Bottom line is, if the Canadian gambler files Form 1040 NR, he will probably have a refund of at least part (and maybe all) of what was withheld by the casino — unless he has other income connected with the USA to report on his US non-resident tax return. But because Form 1040 NR is a very specialized tax return to file, his tax preparer will take a fairly large part of his refund to file it for him. If you are a Canadian paying someone to do this form for you, make sure you use a preparer who has had experience with the 1040 NR. Keep any paperwork the casino gave you showing the amount the casino withheld to give him.
Or, if you prefer, you can use one of the companies on the web that make a living recovering such withholding instead.
Or, if you are really ambitious and really into taxes and accounting, you can order the forms and instructions for Form 1040 NR from irs.gov or print them off the internet and fill them out yourself. You will probably also need Form W-7 to apply for an ITIN - Individual Taxpayer Identification Number - if you don’t already have one. An ITIN is an individual taxpayer identification number used for filing tax returns in the US by people who are not eligible for social security numbers.
Or you can avoid max bets and hope your wins are small enough that you don’t get any hand pays requiring tax to be withheld.
But maybe your best option is to just gamble in Canada where they don’t tax their residents’ gambling winnings! That’s what I would do.
No comments:
Post a Comment