In general, nonresident aliens are subject to the 30% tax on the gross proceeds from gambling won in the United States if that income is not effectively connected with a U.S. trade or business (ECI) and is not exempted by treaty. However, no tax is imposed on nonbusiness gambling income a nonresident alien wins playing blackjack, baccarat, craps, roulette, or big-6 wheel in the United States.
Nonresident aliens are taxed at graduated rates on net gambling income won in the United States that is effectively connected with a U.S. trade or business, however this income is exempt under some tax treaties. Before entering gambling income and losses into a tax return, read the tax treaty for the taxpayer's country of residence to understand its taxability.
Gambling Winnings
In the federal nonresident income tax return (Form 1040-NR), gambling winnings from an effectively connected US trade or business (ECI) are reported on Schedule 1 as a form of additional income. Gambling winnings not from an effectively connected US trade or business are reported on Schedule NEC.
If the taxpayer has winnings from blackjack, baccarat, craps, roulette, or big-6 wheel, and Form 1042-S provided by the casino shows that tax was withheld, the taxpayer can claim a refund of the tax. Enter these winnings on Schedule NEC on line 11, column (d), and enter 0% as the tax rate.
Gambling Losses
Gambling losses effectively connected with a U.S. trade or business, including non-winning bingo, lottery, and raffle tickets, can be deducted on Schedule A (1040-NR) but only up to the amount of the winnings reported on Schedule 1.
Gambling losses not effectively connected with a U.S. trade or business are deductible on Schedule NEC but subject to certain limitations depending on whether or not the taxpayer is from Canada:
- If the taxpayer is from Canada, winnings and losses are entered on separate lines and are netted together but not less than zero.
- If the taxpayer is not from Canada, the tax treaty with the taxpayer's country of residence, if any, should be consulted to determine if winnings are exempt. If there is no tax treaty or no reduced tax rate, gambling winnings includes lotteries and raffles but does not include blackjack, baccarat, craps, roulette, or big-6 wheel. Losses can offset winnings if they are from the same session.
Entering Gambling Winnings from ECI
To enter gambling winnings and losses effectively connected with a U.S. trade or business in the nonresident individual income tax return in TaxSlayer ProWeb, from the Federal Section of the return (Form 1040-NR) select:
- Income
- Other Income
- Other Compensation
- Other Gambling Income not reported on W-2G - Enter the taxpayer's, and spouse's if filing jointly, total winnings and total losses in the fields provided.
Entering Gambling Winnings not from ECI
To enter gambling winnings and losses not from an effectively connected U.S. trade or business in the nonresident individual income tax return in TaxSlayer ProWeb, from the Federal Section of the return (Form 1040-NR) select:
- Other Taxes
- Tax on Income Not Effectively Connected to US Trade/Business - Where to enter the gambling winnings depends on the taxpayer's country of residence:
- If the taxpayer's country of residence is Canada, select Gambling - Canada, enter the totals of the winnings and losses in the fields provided. If the winnings are greater than the losses, enter the net winnings in the 30% column.
- If the taxpayer's country of residence is not Canada, select Gambling - Not Canada, and enter the winnings in the appropriate field, whether they are taxed at 10%, 30%, or at another rate. (If tax was withheld in error, the rate is 0%, otherwise you'll need to enter the rate.
Entering Custom Tax Rates in Schedule NEC
If the taxpayer's gambling activity is being reported on Form 1099-NEC and is being taxed at a rate other than 30%, or 10% if not from Canada, you'll need to enter the rate. From the Schedule NEC menu select Custom Tax Rates and enter the rate in the Custom Tax Rate 1 field.
Entering Tax Withholdings Reported on Form 1042-S
To enter the information provided on Form 1042-S in the nonresident individual income tax return (Form 1040-NR) in TaxSlayer ProWeb, from the Federal Section of the return select:
- Payments & Estimates
- Foreign Persons U.S. Source Income Subject to Withholding
Additional Information: