Jean Scott tackles this thorny issue:
Fortunately, I think I can help with your frustration. I just researched this subject for the new expanded edition of Tax Help for the Frugal Gambler, which will go to the printer this month.
The rules for taxation and withholding tax for non-resident alien (NRA) gamblers vary, depending on the tax treaties in force between their countries and the U.S. Basically, there are two categories: countries whose tax treaty with the U.S. exempts their residents from U.S taxation on gambling income, and countries that don't have a treaty with this exemption.
All non-residents are issued tax paperwork when they hit a U.S. taxable jackpot. This isn't a W-2G. Rather, it's Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding. These non-residents must have U.S. income tax withheld, usually at a rate of 30% of the gross amount of the win, if they're not from an exempt country. Non-residents from countries with a no-taxation treaty aren't required to have the 30% withheld, but they should not depend on the casino to have up-to-date treaty information. Therefore, there is a form they should always carry to show the casino in case of a big win, Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding. Although they'll still get tax paperwork, no tax will be withheld.
Now to your particular case. Unfortunately, Canada isn't one of the countries that has a tax treaty with the U.S. that exempts their residents from taxation on gambling earnings. Therefore, you can't use Form W-8BEN to avoid the 30% withholding on your jackpots. At one time, you also would never have seen that money ever again. However, some years ago, the U.S./Canada Tax Treaty included a provision whereby residents of Canada may claim gambling losses to the extent of gambling winnings. Therefore you need to keep a gaming log (the details are discussed at length in Tax Help for the Frugal Gambler and file a non-resident form as you have been doing to get part or all of the money withheld refunded. I'm sorry, but as a Canadian, there's no magic form that will save you from these steps.
