U.S. Tax on Gambling Winnings for Non-U.S. Citizens

The United States government taxes income generated within its borders, including gambling winnings earned by non-U.S. citizens or residents. For tax purposes, these individuals are nonresident aliens and are subject to specific regulations. While these winnings are taxable by default, international agreements can alter the amount of tax paid. The process involves immediate tax withholding at the source, but it also provides avenues for recovering some or all of the withheld tax.

U.S. Tax Withholding on Winnings

When a non-U.S. citizen wins a significant amount from gambling in the United States, the gambling establishment is required by law to act as a withholding agent for the Internal Revenue Service (IRS). The establishment withholds a portion of the winnings before paying the balance. The standard withholding rate for a nonresident alien is a flat 30% of the gross amount won.

Withholding is triggered by specific thresholds that vary by game. Winnings from slot machines or bingo require withholding if they exceed $1,200, while the threshold for poker tournaments is winnings over $5,000. Other proceeds over $600 may also be subject to withholding if the payout is at least 300 times the wager.

However, winnings from certain table games, including blackjack, baccarat, craps, and roulette, are generally exempt from withholding. At the time of payout for taxable winnings, the winner provides a completed Form W-8 BEN to certify their foreign status. In return, the payer issues Form 1042-S, which details the gross winnings and the tax withheld.

The Role of Tax Treaties

The 30% withholding is not always the final tax liability due to international tax treaties. The U.S. maintains tax treaties with many countries to prevent double taxation. These agreements often contain provisions that reduce or eliminate the U.S. tax on gambling winnings for residents of a treaty country.

Tax treaty benefits can apply to winnings from games of chance like slot machines. However, winnings from lotteries, raffles, and horse or dog racing are often not covered by these exemptions and remain taxable by the U.S. regardless of the winner’s country.

Residents of countries like the United Kingdom, Canada, Japan, and many European Union nations can claim these benefits. To claim an exemption at the time of payment, a winner must provide a foreign address on Form W-8 BEN. If tax is still withheld, the treaty provides the basis for filing a refund claim with the IRS.

Required Information and Forms for a Tax Refund

To claim a refund, a nonresident alien must gather specific documentation, starting with Form 1042-S provided by the gambling establishment. The filer will need the gross income and federal tax withheld figures from this form. Personal information, including the filer’s full name, foreign address, and passport details, is also required.

A taxpayer identification number is required for any foreign person filing a U.S. tax return. Since nonresident aliens are not eligible for a Social Security Number, they must apply for an Individual Taxpayer Identification Number (ITIN). An ITIN is a nine-digit number issued by the IRS for filing U.S. taxes, and a refund claim cannot be processed without one.

The application for an ITIN is made using Form W-7, “Application for IRS Individual Taxpayer Identification Number.” The applicant must provide their name, address, foreign tax ID number, and state that the reason for the application is to claim a tax treaty refund. The Form W-7 must be submitted with the tax return and be accompanied by proof of identity and foreign status, such as a certified copy of a valid passport.

The refund claim itself is filed using Form 1040-NR, “U.S. Nonresident Alien Income Tax Return.” On this form, the filer reports the total gambling winnings and the amount of federal tax withheld from Form 1042-S. For most nonresident aliens, gambling losses cannot be used to reduce reported winnings, though an exception allows residents of Canada to deduct losses up to the amount of their winnings.

Filing a U.S. Tax Return to Claim a Refund

The completed Form 1040-NR, the Form W-7 application, certified identity documents, and a copy of Form 1042-S must be mailed together in a single package. This package should not be sent to the standard IRS processing centers used by U.S. residents.

All tax returns from nonresident aliens that include a Form W-7 application must be mailed to a specific IRS service center in Austin, Texas. The address is: Internal Revenue Service, ITIN Operation, P.O. Box 149342, Austin, TX 78714-9342. Using this address ensures the ITIN unit processes the application before the tax return.

The filing deadline for Form 1040-NR depends on the filer’s circumstances. For a nonresident alien who did not have wages subject to U.S. tax withholding, the deadline is June 15 of the year after the winnings were received. If the filer did have U.S. wages subject to withholding, the deadline is April 15.

After mailing the return, the IRS first processes the Form W-7 application to issue the ITIN. Once the ITIN is assigned, the agency will process the Form 1040-NR tax return. The total time from mailing the return to receiving a refund can range from several months to over a year, depending on processing volumes and the accuracy of the submission.