How to Report Taxes on International Gambling Winnings

United States tax law requires that U.S. citizens and resident aliens are taxed on their worldwide income. This global reach includes winnings from gambling activities, regardless of the location. Whether you win at a foreign casino, an online platform, or a lottery, the Internal Revenue Service (IRS) considers those winnings taxable income. This requirement applies even if the foreign country also taxes the winnings.

Reporting Winnings on Your U.S. Tax Return

Gambling winnings are reported as “Other Income” on Schedule 1 of Form 1040. You must report the gross amount of all winnings, not the net result of your gambling activities. The fair market value of any non-cash prizes, such as cars or trips, must also be included.

When reporting foreign winnings, you must convert the amounts into U.S. dollars. The IRS requires all figures on a tax return to be in U.S. currency. You must use a consistent and verifiable exchange rate for the date you received the winnings. Reputable sources for rates include banks or U.S. Embassies.

Gambling losses are only deductible if you itemize deductions on Schedule A of Form 1040; you cannot claim them if you take the standard deduction. A limitation is that you can only deduct losses up to the amount of your reported gambling winnings. You cannot use a net gambling loss to offset other types of income.

Record-keeping is necessary to substantiate your winnings and losses. The IRS requires a log of your gambling activity, including dates, locations, type of gambling, and amounts won and lost. Keep supporting documents like betting slips, casino statements, and payment confirmations.

Foreign Tax Obligations and Withholding

The country where you win money may impose its own tax on the payout, creating potential double taxation by both the foreign country and the U.S. To collect this tax, many foreign payers will automatically withhold taxes from your winnings before you receive them.

An income tax treaty between the U.S. and the foreign country may alter this situation. Tax treaties are agreements designed to resolve issues of double taxation. Depending on its provisions, a treaty could reduce or eliminate the foreign tax on your gambling winnings.

If foreign taxes are withheld, obtain official documentation from the payer. This receipt or statement should specify the gross winnings and the amount of foreign tax paid, as it is needed for your U.S. tax filings.

Avoiding Double Taxation with the Foreign Tax Credit

To avoid double taxation, you can use the Foreign Tax Credit. This credit reduces your U.S. income tax liability on a dollar-for-dollar basis for income taxes you have already paid to a foreign government.

To claim the credit, you must file Form 1116, Foreign Tax Credit, with your Form 1040. This form requires a detailed calculation to determine the allowable credit amount. You will need documentation of your foreign-source income and official receipts verifying the foreign income tax you paid.

You have a choice between taking a credit or an itemized deduction for foreign taxes paid, but the credit is almost always more advantageous. A deduction only reduces your taxable income, while a credit directly reduces your final tax liability dollar-for-dollar.

The credit is limited to the U.S. tax liability on your foreign-source income and cannot be used to reduce tax on U.S.-source income. If your foreign taxes paid exceed the allowable credit for the year, the IRS allows you to carry the unused portion back one year or forward for up to 10 years.

Foreign Bank and Financial Account Reporting

If you hold your winnings in a foreign financial account, you may have separate reporting obligations. These requirements are meant to provide transparency into offshore accounts held by U.S. persons and are distinct from your income tax return.

Report of Foreign Bank and Financial Accounts (FBAR)

You must file a Report of Foreign Bank and Financial Accounts (FBAR) if the combined value of all your foreign financial accounts exceeds $10,000 at any point during the year. An online gambling account that holds funds can be considered a reportable account. The FBAR is filed electronically with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, using Form 114. The filing deadline is the same as the income tax due date, with an automatic extension available, and failure to file can lead to significant penalties.

Statement of Specified Foreign Financial Assets (Form 8938)

A separate requirement is filing Form 8938, Statement of Specified Foreign Financial Assets, which is submitted with your Form 1040. The filing thresholds are higher than the FBAR and depend on your filing status and location. It is possible to be required to file both the FBAR and Form 8938.

The filing thresholds are:

• For an unmarried individual living in the U.S., the threshold is met if specified foreign assets are more than $50,000 on the last day of the tax year or more than $75,000 at any time during the year.
• For a married couple filing jointly in the U.S., the thresholds increase to more than $100,000 on the last day of the tax year or more than $150,000 at any time during the year.
• For an unmarried individual living abroad, the threshold is met if specified foreign assets are more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year.
• For a married couple filing jointly abroad, the thresholds increase to more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.