Gambling winnings usually make people really happy! Imagine the euphoria of the foreign national on vacation in Las Vegas or Atlantic City when she wins $1,000,000 at the casinos. Now, imagine her extreme disappointment and unhappiness when the casino pays her only $700,000 and tells her that the balance will be paid over directly by the casino to the United States taxation authorities, the IRS. “Is this possible?”, she wonders. YES, it is! Here are the basic facts about gambling winnings won by a nonresident alien individual (NRA) in the United States.
By way of background, a NRA who is considered to be “engaged in a US trade or business” at any time during the tax year, is taxed at regular graduated US rates on the net taxable income effectively connected with that business. This means she is taxed on the US source gross income minus all permissible deductions. Sometimes, depending on the facts, professional gamblers may be considered “engaged in a business”.
On the other hand, a NRA is taxed by withholding, at a flat 30% (or lower treaty rate, if applicable) on certain US-source income that is not treated as effectively connected with a US trade or business. In this context, the 30% withholding regime would apply to the casual as opposed to the professional gambler on certain types of gambling winnings. Some types of gambling winnings are specifically exempt from tax. Generally, these are winnings from blackjack, baccarat, craps, roulette or big six wheel, except to the extent provided in IRS regulations. Read more