7 Facts about Gambling Winnings in the US
If you love the excitement and allure of gambling in the US, you may be wondering just how your winnings will be taxed. A federal appeals court ruled recently that the IRS can’t tax foreigners on each bet they make in US casinos because that doesn’t take into account the possible losses on the session as a whole. But that doesn’t mean you are free and clear from any tax reporting responsibilities! So here are 7 facts about gambling winnings foreign nationals should understand.
- Winnings are taxable
Gambling winnings are considered to be taxable income in the United States, even if you are not a US citizen. Gambling winnings include cash and non-cash prizes including (but not limited to) the following:
- Casino Games
- Slot machine payouts
- Poker tournaments
- Betting Pools
- Horse, dog, or automobile racing
- Off-track betting
- Non cash prizes including cars, holidays, and other physical property
All gambling winnings are supposed to be reported to the IRS, regardless of receipt of IRS forms issued by the payer.
Gambling institutions such as casinos and state lotteries, are required to issue form W2-G when the amount of your winnings exceed certain thresholds. The gambling institution will issue a W2-G for the following winnings:
- $600+ at a horse track (if the winnings are more than 300 times your bet)
- $1200+ in a single jackpot at a slot machine or bingo game
- $1500+ in a single Keno win
- $5000+ in poker tournament winnings
- Certain other gambling winnings not listed above
Form W2-G will not be issued for table game winnings such as Blackjack, 21, Pai Gow, Baccarat, and Roulette.
- The US-Germany tax treaty prevents dual-taxation
The best news we have for you is that the tax treaty between Germany and the US allow for any income that has not been classified specifically in the treaty to be taxable only by the citizen’s home country. Gambling winnings fall into this unclassified status. Since Germany does not tax gambling winnings, and they are not taxable in the US due to the tax treaty, then the gambling winnings will be tax free income. The provision for this position within the US-Germany tax treaty is in Article 21(1). But remember, even though aren’t taxed on your winnings, you may still need to report them.
- Casinos are required to withhold tax on some winnings
Certain winnings, such as automobiles and non-cash prizes, require the gambling institution to issue you a 1099-misc form to report the income. The value of non-cash prizes is generally reported using the fair market value of the item. Due to the requirements of casinos to withhold taxes, foreign nationals without a W8-BEN may be required to pay the withholding amount before a non-cash prize is released to them.
Here’s a real-world example:
Paul, a German national, wins a BMW (valued at $50,000) during a drawing at a Las Vegas casino. He does not have a taxpayer identification number or W8-BEN form. The casino requires that Paul pay them $15,000 (30% of $50,000) before they can release the car to him in order to satisfy the mandatory withholding requirement. Paul will be issued a 1099-Misc or W2-G with $50,000 shown as the gambling winnings and $15,000 of tax withholding.
Generally, casinos and other gambling institutions are required to withhold 30% of the total winnings for federal taxes when not presented with a valid Social Security number for the W2-G form. German nationals (nonresidents of the United States) can recover these withheld taxes by filing a US tax return, Form 1040NR, and use the US – Germany tax treaty position which allows for non-taxation of the income. This should recover all the taxes withheld on the winnings.
- You can avoid withholdings before they happen
Casinos and other gambling institutions are required to obtain information about winners in order to satisfy their reporting requirements with the federal government. However, presenting them with a W8-BEN will satisfy the information they need and allow for zero withholding of federal income tax on gambling winnings.
Ideally, foreign nationals want to avoid paying the withholding taxes altogether. To do this you would need to obtain a taxpayer identification number and fill out form W8-BEN, which you would bring with you when you gamble at US institutions. To obtain a taxpayer identification number you will need to fill out Form W-7 and mail it in to the IRS along with proper identification, or visit an ITIN acceptance agent in the US. (There are some casinos that can provide this for you.)
On the Form W8-BEN, you will need to fill in the following information:
- Name and address of the gambler
- US taxpayer identification number (ITIN, or social security number)
- Date of birth
- Tax Treaty benefit explanation.
- You can have withheld taxes refunded to you
If you had taxes withheld from your winnings, the good news is you may be able to get it back! Here is what to do:
- Obtain a US taxpayer identification number (ITIN) by filing form W-7 with the IRS
- Gather all the tax forms given to you by the casinos
- File a US tax return for non-residents, Form 1040NR.
- Report all gambling winnings on the tax form along with any taxes that were withheld from them.
- Attach Form 8833 to declare the use of a treaty position in order make the winnings non-taxable. The IRS will refund all taxes withheld. There is a 3 year time limit on claiming a refund from the IRS.
- You may need to file a US tax return
If your total US sourced income (gambling winnings + other income) exceeds the US filing threshold, you are required to file a US tax return and report the income earned. (The filing thresholds vary by filing status and can be found here on the IRS’ website.) Attach Form 8833 to the tax return to claim any treaty benefits, including the benefit to have gambling winnings treated as being only taxed in Germany. Filing a US tax return does not necessarily require you to pay income tax to the US, it merely reports the income to the IRS.
Note: You will need a taxpayer identification number to file a US tax return.
- State withholding taxes are NOT recoverable
The US not only has federal income tax, but there are also state, county, and city taxes. These different taxes vary depending upon the geographic location and the individual tax laws. If you are gambling in a state that levies income taxes, the casino/gambling establishment could be required to withhold state income taxes in addition to federal income tax. Generally speaking most states do not recognize federal tax treaties, and so you may not be able to claim back state taxes withheld without filing a tax return in that state.
Las Vegas is within the state of Nevada, which does not have a state income tax, so there will not be any state withholdings winnings in Las Vegas or any casino in Nevada. Most casinos outside of Nevada are run by Native American tribes, but are still required to follow state income tax laws. You should consult with your US tax preparer and/or the gambling establishments to determine which winnings would be subject to state, county, or city withholding of tax.
Examples of typical gambling winning scenarios
- John, a German national, travels to Las Vegas on holiday. He wins a single $10,000 jackpot on the slot machines while playing at Caesar’s Palace, triggering the creation of form W2-G by the casino, a copy of which is given to the player. He also wins $1000 more in various slot machine wins, none of which trigger the creation of form W2-G. When John wins the $5000 jackpot, he hands the slot attendant his German passport along with Form W8-BEN. The slot attendant processes the form and no withholding is taken from the $10,000 jackpot. At the end of the calendar year, John will need to file Form 1040NR with the IRS and report the $11,000 of gambling winnings. He will attach Form 8833, reporting his use of the treaty position to make the gambling winnings non-taxable in the US, along with a copy of the Form W2-G he received from the casino. John will only need to file Form 1040NR in the years that he has US sourced income.
- Susan, a German national, travels to Las Vegas on holiday. She wins $8,000 while playing in a poker tournament. She does not have a Form W8-BEN, and as such the casino withholds 30% in federal taxes from her winnings. At the end of the calendar year, Susan will need to file Form 1040NR with the IRS and report her $8000 of gambling winnings and federal tax withholding. She will attach Form 8833 reporting the use of the treaty position to make the gambling winnings non-taxable in the US, along with a copy of the W2-G received from the casino to prove that taxes were withheld. The IRS will refund the amount of taxes withheld from the winnings.
About Greenback Expat Tax Services
Greenback Expat Tax Services specializes in the preparation of US expat tax returns for Americans living in Germany and around the world. Greenback offers flat fee pricing, a simple, online process and experienced CPAs and IRS Enrolled Agents who work with expats 100% of the time. For more information or to have a Greenback accountant prepare your US tax return, visit http://www.greenbacktaxservices.com.
- automobile racing
- dog raicing
- Form 1040NR
- Form 8833
- Greenback Tax Service
- horse racing
- income tax
- income tax return
- Las Vegas
- slot machines