Question of the Day - 07 May 2007

For this one, we turned to Vegas tax expert Marissa Chien, EA.

When a non-U.S. citizen hits a big jackpot, assuming he's never hit one before, he will receive a Form 1042-S from the casino when he receives his payout, minus 30% of the winnings that's withheld by the casino on behalf of the IRS.

Then, if he's from a treaty country (which France* is), he'll have to get an ITIN (Individual Tax Identification Number) from the IRS and then file a 1040NR to claim the 30% back. It usually takes about 12 weeks to get the refund. Of course, you'll still need to declare and pay tax on your win in your native country. (I'm not sure if the IRS will report to the foreign tax authority or not, but they might.) Don't forget to claim: The refund period expires after three years.

If he's not from a treaty country, then he'll have to file a 1040NR and pay taxes on his win that are assessed depending upon a number of factors including whether he has any gambling losses to offset against the win, if he won any other jackpots within that tax year, etc.

If he already has an ITIN and hits a jackpot and is from a treaty country, he can present to the casino Form W-8BEN, along with his ITIN, and then the casino will not withhold the 30%.

To summarize, if you're from a treaty country, no tax is permanently withheld, regardless of how much you win, provided that you are not in the U.S. for more than 30 days, i.e., you're a tourist. (A different set of rules apply if you're in the U.S. for longer than 30 days, but let's not get into that right now.) If you're not from a treaty country, you are generally entitled to offset gambling losses against your win, provided that you can prove said losses.

More information can be found at "http://www.irs.gov/businesses/small/ international/article/0,,id=106252,00.html" as well as in Tax Help for the Frugal Gambler, which Marissa co-authored with Jean Scott and which is about to enter its second edition.

Thanks to the reader who wrote in with the following: "Would it be possible to publish an update to this QoD? The information given is helpful and accurate, however, an addition is needed. I found out today when I visited the IRS office at the US embassy in London that an application for an Individual Tax Identification Number can only be made after a 'taxable event' has taken place. In other words you can't apply for a number in anticipation of a jackpot. You have to wait until it has occurred and you have had tax witheld. Illogical but fact, I was assured."