What if the winner is a non-U.S. resident, and they win a gambling prize in the U.S.?

If a non-U.S. resident (nonresident alien) wins a gambling prize in the United States, specific tax rules apply based on U.S. law. Here’s an outline of the key considerations:

Taxation Rules:

1. Withholding Tax:
   • Gambling winnings for non-U.S. residents are subject to a flat 30% withholding tax.
   • This applies to the gross amount of winnings, not the net amount after deductions.
   • Certain exceptions apply if a tax treaty exists between the winner’s home country and the U.S. that reduces or eliminates the withholding rate.
2. Form W-8BEN:
   • The winner must complete Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, to provide the necessary details for tax withholding.
   • If a treaty applies, the form will include the claim for a reduced rate or exemption.
3. Reporting Requirements:
   • The casino or gambling establishment must report the winnings to the IRS using Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.
   • A copy is also provided to the nonresident winner.
4. Non-Taxable Games:
   • Certain games like blackjack, baccarat, craps, roulette, and big-6 wheel are exempt from U.S. withholding and reporting requirements for nonresident aliens.
5. Filing a Tax Return:
   • Nonresident winners can file a U.S. tax return (Form 1040-NR) to potentially recover some of the withheld tax, especially if gambling losses incurred in the U.S. can be substantiated (this is only allowed for residents of countries with applicable treaties).

Treaty Considerations:

• The U.S. has tax treaties with some countries (e.g., Canada, U.K., Germany) that may provide partial or full relief from gambling taxes. Winners should check the treaty provisions for their country to determine the applicable tax treatment.

Example:

If a Canadian resident wins a $10,000 prize at a U.S. casino:

• 30% ($3,000) is withheld as tax unless a treaty reduces the rate.
• The casino reports the winnings on Form 1042-S.
• The winner may file Form 1040-NR to claim gambling losses or request a refund under treaty provisions.