1042-S Scenario: Casino and Foreign Winner’s Gambling Winnings

Here’s how IRS Form 1042-S might apply to scenarios involving a casino which may need to report U.S.-source income payments to foreign recipients.

Scenario: Casino and Foreign Winner’s Gambling Winnings

Let’s say a foreign tourist wins money at a U.S.-based casino. Gambling winnings for non-U.S. residents are typically subject to withholding at a 30% rate, depending on the amount and type of game.

1. Withholding Requirement: The casino, acting as the withholding agent, must withhold 30% of the foreign winner’s gambling winnings. This amount is considered U.S.-source income because it was earned from a U.S. activity.
2. Issuing Form 1042-S: The casino provides Form 1042-S to the foreign winner, documenting:
   • The total amount of the winnings (Box 2),
   • The income type code for gambling winnings (Box 1),
   • The amount of tax withheld (Box 7),
   • Any treaty benefits (if applicable) that might reduce withholding.
3. Recipient’s Use of Form 1042-S: The foreign tourist can use this form to:
   • Report their gambling winnings if they choose to file a U.S. tax return.
   • Claim the withholding credit on their return, possibly receiving a refund if their actual U.S. tax liability is lower than the withheld amount.

Form 1042-S serves as proof of the income received and the federal income tax withheld, allowing the foreign recipients to properly report their income and, if eligible, claim a refund for overpaid withholding.