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American and Worldwide Taxes in Gambling

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gambling taxesWhy do American casinos and lotteries deduct an amount directly from the foreign players gains?  It's interesting to know that in a general way and according to articles 1441 to 1443 of the Internal Revenue Agency (IRS), all foreigners are subject to American income taxes on all their revenues won in the Unites States. The majority of these types of incomes have a 30% level of taxation. Recently certain States have also introduced a supplemental system of taxation. According to American laws, non-Americans are also subject to a tax withholding of the same percentage on their American financial gains.


According to the law, a foreigner is defined as an individual who does not have the United States as his main home, or a corporation, partnership or trust based in another country.


While usually gambling gains are reported to the IRS on a form called W-2G, this one is not used for foreign winners. These revenues will be reported on 1042 and 1042-S forms, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons et Foreign Person’s U.S. Source Income Subject to Withholding. Thus the rule on income from a foreigner prevails on the one on gambling revenues. However, as in the rule on gambling wins, there are some exceptions: gains from blackjack, roulette, craps and Big-Six wheel are not reportable and no tax is applicable.


Unfortunately for us Canadians, these gains are not exempted through a special treaty. Indeed, some countries have negotiated commercial treaties with the United States, thus exempting residents of these countries from paying taxes on their gaming wins, so no  withholding taxes are taken from their wins. these countries are:


-Austria, Belgium, Bulgaria, the Check Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Iceland, Italy, Japan, Latvia, Lithuania, Luxemburg, Holland, Russia, Slovakia, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine and Great Britain.


All is not lost though, far from it. Indeed, although no treaty allows us to be spared from withholding taxes on our gambling wins, a special treaty between Canada and the United States allows us to, in certain cases, obtain a reimbursment of American income taxes paid on gambling wins. 


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