Who doesn’t love winnings from gamblings?
Of course, everyone does! But once the excitement fades away and the time comes to fill in taxes against your winnings, matters start getting grim. Doesn’t it?
When it comes to paying tax for gambling winnings, the norms are different for different countries. But the best part is that if you are a citizen of Canada then, reporting your gambling winnings while filing the tax is not necessary. Nowadays, online casinos are a rage. Hence, gambling winnings from a Canadian online casino are non-taxable as well. However, this is true only if you don’t own the gambling business or any gambling establishment whatsoever.
Now, if we talk of the US federal laws, the cash or non-cash winnings or prizes from gambling or jackpot are all taxable, and the income needs to be reported while filing the tax return.
Do not be sad yet because there’s more information that can be helpful for you, so let us dig deep!
What are cash winnings?
Cash winnings are given out in the form of money from games like:
- Slot machines
- Poker or some other game
- Gambling in casino
What are non-cash winnings?
Non-cash winnings include items like a car or a vacation to some fancy location or a yacht or a bungalow and more. In this case, you have to show its fair market value while calculating your total income because now these are the things you possess.
What are the concessions you can get?
You can show gambling losses, in a listicle format, that need to be deducted, under schedule A. You will have to keep correct details of all your losses and wins along with proper data of all the gambling activities you have indulged in so far.
Suppose you are a Canadian citizen who has received gambling winnings in the US. There are some provisions through which you can claim a refund on the taxes held back from the gambling winnings provided you file a tax return. Form 1040NR is meant for US non-resident alien income tax return.
What is good news for US citizens and how to report the winnings?
What makes this entire thing so interesting is that a flat rate is levied on all gambling winnings irrespective of what amount you are winning. This system is way better and convenient when compared to making payments of a progressive tax on salary income. Holding back the taxes until the return is filed is automatically done by the casino or the track when you win a lump sum.
The taxable amounts are:
- $600 and above, given the amount, is at least 300 times your wager
- $1,200 and above, if you win from a game of bingo or a slot machine
- $1,500 and above if you win from keno.
- $5,000 and above, if you win by participating in a poker tournament.
- Or if you win anything taxable under the federal income tax withholding requirement.
Yes, you might receive a Form W-2G, with this one and 1040 you will be able to show all your claimed prizes from gambling. Also, at the same time, you will be able to deduct your losses too. However, you cannot expect to receive the form automatically from all the casinos out there. So, to be on the safe side, keep everything documented; all your records, data, and gambling activities. It is also crucial for you to know that if you keep your gambling winnings recorded on the W-2G form, a flat withholding rate of 24% is levied. You have to provide the payer with your tax ID number, but in case you forget to do so, worry not because in that case also the 24% flat rate will be applicable.
Withholding is a must (bet deducted from the amount of total winning) when the outstanding amount is more than $5000 (from sweepstakes, lotteries, pools, and wagering) or at least 300 times of the total bet amount. You will also get a copy of the W-G2 form, which will have the total amount of your gambling winnings as well as the tax amount that is withheld. In case you don’t get a copy of your W-G2 form, don’t forget to show your winnings while filing your tax return.
What are the provisions for the residents of Canada?
- Line 10a of schedule NEC – This includes the winnings from gambling and lottery for Canadians, but this is exclusive of prizes from blackjack, roulette, craps, baccarat, or big-6 wheel.
- Line 10b – Here a Canadian can show the losses while gambling.
- Line 10c – If the total income from gambling is zero or even goes down to negative.
A refund can be claimed on receiving a form 1042-S (Foreign Person’s US Source income subject to withholding) from the casino, stating that the tax was levied provided, you have won from blackjack, baccarat, craps, roulette, or big-6 wheel. You just have to show the amounts you have won in column d of line 10, with a zero% tax rate.
But before anything else, make sure that you have an individual taxpayer identification number (ITIN). In case you don’t have the ITIN, then you must first apply for it and then do the needful.
The system of the standard deduction is very interesting, and the government pays more than whatever you have shown in the list. However, for an avid gambler, it is best to provide an itemized report of the deductions. The procedure is simple; keep the records documented and handy because the government will certainly want to look at your total earnings from gambling. By keeping everything under lock and key, we mean, keep all the receipts, transaction history, bank statements, stubs, and safer so that you can refer to those or show them to the government personnel whenever asked for.
Some bets can be tricky that mixes up the tax calculation. Some bets collectively can be taken as a single betting transaction, and in cases like these, you must be careful. Emphasis on keeping the records clear is necessary because if you want professional help, then you will be required to show all the documents categorically.
Staying in the US and not showing gambling winnings is a criminal offense under federal law. Hence, keep your records straight and clear to avoid being put in jail or paying hefty fines.