Do I Have To File a Non-Resident Return for a Tax Refund?

I live in South Dakota and won a $1,600 payout in an Iowa casino. They took out $100 for Iowa state income tax. I called the Iowa tax people to ask if this would be refunded if I filed a return. They referred me to a web page that didn’t clarify things at all. I don’t want to go through the hassle of filing a return if I won’t get the refund. Is each state unique or are they all the same? Bottom line is, I want to know if I’ll get a refund without filing to find out.

[Editor's Note: Coming up on the last month of the year brings to mind that tax time is nigh. We saved this question as a reminder. Not that anyone needs much of one. We handed this question off to Jean Scott, author of our Tax Help for Gamblers Fourth Edition. The answer also benefits from an assist from Russell Fox, a Las Vegas Enrolled Agent and gambler himself. Take it, Jean and Russ.]

First off, yes, each state is unique in its state tax laws about gambling. And to complicate things further, not all states follow the same rules that the feds do for the IRS return.

In our book, Tax Help for Gamblers, we have a whole section at the end that goes through all 50 states and summarizes how each treat gambling numbers for resident gamblers who play in casinos in their own state.

However, we don't completely cover an extremely complex issue for each state – how states tax jackpots hit by a non-resident. As in your case, you usually have to dig into state laws when two states are involved and, as you readily found, even then, the process and result aren't always clear.

Sometimes two (usually adjoining) states have a reciprocal agreement. Sometimes you have to file a separate non-resident return to get a full or partial refund of money withheld from an out-of-state jackpot. And sometimes you have no recourse; there simply isn't any way to get money withheld from a jackpot refunded.

In your example, you will have to file an Iowa non-resident tax return, noting your Iowa winnings, in order to possibly get a refund. As to whether or not you’ll get one, it's likely that it won't be the full amount of the withholding.

Unfortunately, the only way to know is to run the numbers — that is, prepare a return and see. You'll need to decide whether the $100 withheld is worth your time, or the expense if hire someone else to do it for you.

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Comments

Jackie Nov-26-2021

Any way but lose.

Did you have a players card for the Iowa casino?
If so, they should have a record of your wins and loses.
File an out of state return using that record.
A $1600 income for the year should put you in a non taxable income bracket especially if loses were recorded.

There should be on that website either an out of state fillable tax form and/or a set of instructions.
You should receive a W-whatever by the end of January from Iowa with your total income for the year noted.  If not you can use whatever paperwork the casino gave you.

Now for the bad news.
South Dakota may want a piece of that money and the IRS was notified by Iowa of your winnings and of course they will want a piece.

Have fun.

Jerry Patey Nov-26-2021

Taxes

I don’t know about Nev but in Ms the tax belongs yo the state. It is not eligible to file it on state tax return. I don’t mind. I am past 65 and get two deductions on my property taxes . I pay property tax of 625 dollars on my small house with value about 250k.

O2bnVegas Nov-26-2021

Some states tax winnings

I dealt with this for Mississippi casino taxable jackpots for years. I don't live in MS.  My tax guy, in addition to filing the Fed and my state (who had no casinos at the time) return to get me back some of what was deducted by Mississippi.  It usually didn't amount to a whole lot and to be honest I didn't question whether he charged extra to do that.  Then one year the guy said "We [they?] don't do that anymore" and I let it go.  Maybe MS and my state have one of those reciprocal agreements or some other confusing reason not to bother with it.  If you pay someone to do your taxes and insist that they file an Iowa return they likely will charge for doing it.  Good luck.

Candy

Kevin Rough Nov-26-2021

Watch who you take tax advice from

Most of the tax advice I read on Facebook or comments sections is wrong. Since Russel Fox who wrote the answer to the question is an Enrolled Agent I would tend to believe what he wrote.  Otherwise ask your tax person.  And hopefully your tax person specializes in gambling tax issues.

Sean Lowery Nov-26-2021

Filing vs Not Filing

Jean's answer is right on. My recommendation is to let it go.  Iowa withheld because that state has a personal income tax. Your home state of South Dakota does not. Most decisions regarding whether or not to file a non-resident return stem from whether it's worth it to avoid double taxation on the money. In this example, since one state taxes the money and the other does not, it's unlikely worth your time to file. Iowa will not give it to you because it's not subject to tax in South Dakota.  That's the reciprocal business discussed in the answer.  One other thing - states will not give money back without filing.  So, always consider the cost in time and money as Jean indicated.  $100 would not be worth it for most of us, regardless of the circumstances and ability to get it back.

Sandra Ritter Nov-27-2021

Reciprocal Agreement

'Sometimes two (usually adjoining) states have a reciprocal agreement.' That is true but it's usually regarding W-2 income. Eg if someone who lives in IL works in WI, the agreement is they pay taxes to IL on that income, not WI. And IL taxes are withheld on their paychecks. Gambling winnings don't fall in this category.

Question of the Day - 26 November 2021

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