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Claiming a Refund for US Taxes Withheld From Lotteries or Gambling Winnings

The information in this article applies to Canadian residents who are not US citizens, and are not US residents.

All of the links in this article are to documents on the website of the IRS, and most of the links are to pdf files.

Contest prizes and winnings from lotteries or gambling are not taxable in Canada, so this type of income does not have to be reported on your Canadian tax return, unless of course you are engaged in the business of gambling. On your Canadian tax return, you cannot claim a credit for any taxes withheld from these non-business income winnings.

US Contest Winnings Received by a Canadian

If you are a Canadian resident and have had 30% tax withheld from winnings from a game show, according to an agent with the Internal Revenue Service (IRS), whether or not you can recover this money depends on how the winnings are recorded on form 1042-S tax slip (link at bottom). Game show contestants normally have to sign a release prior to competing on the show, and apparently the release should indicate how the winnings are categorized on the tax slip that they'll issue. The IRS agent didn't indicate that there was a "correct" category to use for winnings from a game show.

According to section 74 of the Internal Revenue Code, prizes and awards are included in gross income, except in certain circumstances. Gross income does not include certain amounts received as prizes and awards if all of the following conditions are met:

	The recipient was selected without any action on his or her part to enter the contest or proceeding;
	The recipient is not required to render substantial future services as a condition to receive the prize or award; and
	The prize or award is transferred by the payer to a governmental unit or tax-exempt charitable organization as designated by the recipient.

The 1042-S does not have a category described as prizes or awards, so we're not sure what code would be used for contest winnings.

Contest winnings (depending on how they are categorized on the 1042-S) are entered on Schedule 1 line 8i and then on Form 1040NR line 8. They are not offset against gambling losses, which can be used to reduce gambling winnings but not other income.

A nonresident alien cannot claim the standard deduction, and since contest winnings are not "effectively connected income (ECI)" (from business or a trade), no itemized deductions can be claimed to reduce the taxable income from contest winnings.

Since the US tax rate on these winnings is 30%, and there is nothing in the tax treaty to reduce this rate, the tax paid cannot be recovered. Again, this depends on how the winnings are shown on the tax slip issued by the payer.

US Lottery or Gambling Winnings Received by a Canadian

If you are a Canadian resident and have had 30% tax withheld from lottery or gambling winnings in the US, some or all of the tax can be recovered if:

	you also have US gambling losses to offset some or all of the winnings, or
	tax was withheld from winnings from blackjack, baccarat, craps, roulette or big-6 wheel

In order to get a refund of US taxes withheld from lottery winnings or gambling winnings, Canadian residents must file a US tax return. The US tax return to be filed is

Form 1040NR - US non-resident alien income tax return. Also needed with this form are:

Schedule A (Form 1040-NR), Itemized Deductions

Schedule NEC (Form 1040-NR), Tax on Income Not Effectively Connected with a US Trade or Business

Schedule 1 (Form 1040) Additional Income and Adjustments to Income

Your lottery winnings, and gambling winnings and losses will be recorded on Schedule NEC (part of Form 1040NR), as long as you are not engaged in the trade or business of gambling. Read:

	Instructions for the 1040NR, and
	Instructions for Schedule NEC, included in the 1040NR instructions.

Gambling and lottery winnings for residents of Canada are included on line 10a of Schedule NEC. Proceeds from lotteries and raffles are also included on line 10a, but winnings from blackjack, baccarat, craps, roulette, or big-6 wheel are not included here. Gambling losses (net of deduction for lottery tickets purchased in the same year) are entered on line 10b, with net gambling income (zero if negative) entered on line 10c.

If you have winnings from blackjack, baccarat, craps, roulette, or big-6 wheel, and the casino gave you a Form 1042-S (Foreign Person’s US Source income subject to withholding) showing that tax was withheld, enter these winnings in column d of line 10, with a tax rate of zero%. You can claim a refund of the tax.

If you do not already have an individual taxpayer identification number (ITIN), you will have to apply for one. The application form is

Form W-7, and the instructions for the form

Your 1040NR tax return must be attached to the application form W-7.

IRS Resources

Taxation of Nonresident Aliens

About Form 1042-S, Foreign Person's US Source Income Subject to Withholding

Schedule 1 (Form 1040) Additional Income and Adjustments to Income

Publication 515 - Withholding of Tax on Nonresident Aliens and Foreign Entities

Publication 519 - US Tax Guide for Aliens

Revised: October 26, 2023