Gambling Winnings Tax United States vs Canada
Like many countries, our nation also has a neighbor, the United States of America. While we go about our everyday business, we usually do not think about what happens in the nation to our south. This is especially true when it comes to gambling. Should we, however, visit our neighbors, we soon face the reality of Canada being different – not only when it comes to our taste in sports such as ice hockey rather than American football or your innate politeness.
It is the legal system including whether a gambling tax must be paid that we, as players, should be aware of. While tax avoidance (minimizing the tax you have to pay in legally permitted ways) is allowed, you would not want to be caught evading taxes (knowingly or unknowingly not paying taxes even though you should have).
Gambling Taxation United States
Like in Canada, you first need to determine whether you are a professional or casual gambler. The latter only plays for fun, while the first makes a living from playing games of chance – as it would be the case with a professional poker player. If you are a professional player, taxes must be paid in accordance with the income tax regulations of your residence country.
But unlike in Canada, even casual players might have to pay a gambling winnings tax. In any case, US residents have to report this extra income on a special gambling winnings tax form, which can be found here. It is then up to the IRS to determine an estimate tax to be paid.
At this point, you might be asking: Are gambling losses tax deductible? The answer is that certain losses can indeed be deducted from your gambling winnings tax as “Other Itemized Deductions” on the respective form. However, you do need to make sure to keep the receipts of your gambling expenses. Moreover, you cannot deduct more losses than the winnings you stated previously.
Let’s use an example to illustrate how the US gambling tax system works: You were playing in the Bellagio in Las Vegas and you won USD 6000 in total. To get to this lovely sum, you spent USD 7000 on wages. All in all, you suffered a loss of USD 1000. Since you kept all of your receipts, you can therefore deduct USD 6000 in taxes (7000 would be more than your total winnings), but you still need to state your winnings of USD 6000 as well. In this case you won’t have to pay taxes, since you lost as much (and more) than you won. Nonetheless, you still need to fill the forms out.
In the next tax year, you head back to the casino and this time you spent USD 4000 on wages and you won USD 10,000 in total. Hence, you can deduct the full USD 4000 but also must pay taxes on the difference, which is USD 6000. In form “W-2G Certain Gambling Winnings” you, of course, add the entire sum of winnings (USD 10,000).
What about Canadians that gamble in the United States?
As a Canadian resident, you might have to pay taxes on your gambling winnings from a US casino.
The question that needs to be asked in this regard is: How much money can you win gambling without paying taxes? And the answer is up to USD 1200. In case you are planning to evade this tax, it won’t be possible. As soon as you ask the casino’s cashier to pay out your winnings, 30% are automatically withheld for tax purposes.
Should you be a Canadian legally working in the US, the previous paragraph applies to you. Therefore, you need to state your losses and winnings on your tax return, which could help you to get some of the money back. In this case, you are not evading tax, but you legally avoid it.
Gambling Taxation Canada
If you are a Canadian, playing in a Canadian casino and you win the jackpot (or a smaller amount), chances are good that no gambling winnings tax is applicable. There are, however, a few exceptions.
The most common one is that you are not a casual gambler. If playing games of chance is your job, then you will have to pay income tax on any earnings you make from it.
The other exception comes into place when you play in a casino that is not in Canada (e.g. after travelling across the border to the US or while playing in a foreign online casino). Taxes might be applicable according to the local law where the operator is based.
What about United States citizens gambling in Canada?
The US American law on gambling taxes is much stricter than the Canadian law. This means that you still must declare any gambling winnings on your tax return, even if they were achieved in a foreign casino.
It does not matter whether you traveled to another country to win the jackpot or did so while playing in an online casino. In the US, your winnings are regarded as income, no matter where you got them from.
Not mentioning your gambling winnings results in tax evasion and could lead to a punishment.