U.S. citizens, resident aliens and green card holders are subject to U.S. tax on their gambling winnings.
Canadians who do not fall into this category are subject to a 30% withholding tax on winnings. Games such as blackjack baccarat, craps, roulette or Big 6 wheel winnings are not subject to the 30% non-resident withholding tax.
If tax was withheld from your winnings on exempt games, you may file a U.S. 1040NR tax return in the following year to obtain a refund if tax was withheld.
If there was tax withheld on other non-exempt games, Article XXII, paragraph 3 of the Canada/U.S. tax treaty allows you report winnings net of losses to lower the amount subject to the 30% withholding tax. This is done by filing the U.S. 1040NR return. From the computed tax liability, you claim a credit for any tax withheld that is noted on the U.S. tax information slip provided to you by the casino. Therefore the final tax bill is 30% of you net of gross winnings less supportable losses. The tax return requires in the NEC section to input winnings on one line and losses on another and then compute 30% tax on the net. Your refund is the excess of the computed tax less any withholdings.
The IRS code on withholding does not allow non-residents to deduct the losses at the source to reduce the withholding or in otherwards, a W8-BEN waiver for reduced withholding is not applicable here. You have to file the return to get the refund.
Therefore unless you have losses on non-exempt games or the payor over-withheld, it appears that filing a return will not get you any refund.
Please note that you may have to prove your losses with gambling receipts, tickets and statements.
First time filers need to apply for an individual taxpayer’s identification number (“ITIN”) by completing IRS Form W-7 that is sent to the ITIN office with the first return.
Contact your professional advisor prior to implementing any of the outlined strategies.
Pursuant to Internal Revenue Service Circular 230, we hereby inform you that the advice or information set forth herein with respect to U.S. federal tax issues was not intended or written to be used, and cannot be used, by you or any taxpayer, for the purpose of avoiding any penalties that may be imposed on you or any other person under the Internal Revenue Code.