Ask the Slot Expert: Taxes on slot winnings for Brits

Love your column. I have been reading all your articles since my first trip to Vegas back in 1998 and I have learned so much from you regarding slots. Keep up the good work.

My query is two fold. I play the slots a lot at home in the U.K. as well as in Vegas. I have been fortunate enough to win quite well on them.

In April this year, when playing slots in Excalibur, I won over $2,000 and cashed out. I went to the desk and got paid in full on production of my passport for ID. But later in the week, after we had been knocked out of the poker tournament at the Venetian, one of my friends won a jackpot of $1,560 on one of the slots and it displayed a hand-pay notice. The guy came and took him to the desk for payment. He found that 40 percent tax had been deducted and he was given a W-2G even after providing ID with U.K. passport and told to claim it back himself.

Question 1 - Why the difference?

Question 2 - If the IRS reduces the tax level to $600, does this mean all our big wins are going to be subject to tax?

Lastly, explain the tax situation for a U.K. citizen in Vegas as you understand it. Do we need to get an individual taxpayer identification number (ITIN), and if so, how do we go about it?

Thanks for the kind words about my columns.

Congratulations on your good fortune at Excalibur. Because you didn't mention your machine locking up, I'm guessing that you won $2,000 overall and less than $1,200 on any individual spin. If this is indeed what happened, you would not be given a 1042-S (the non-resident equivalent of a W-2G).

The rules for triggering a tax form are very confusing. Some people -- even people who work in a casino -- think that cashing in a ticket for $1,200 or more triggers tax paperwork. The triggering event on a slot is winning $1,200 or more on a spin or hand. You can cash in tickets for $1,200 or more, individually or in aggregate, without having to make friends with the IRS.

Moving on to your friend, his machine locked up so he won $1,560 on one spin and would get IRS paperwork.

For gambling tax matters, I always turn to Tax Help for Gamblers by Jean Scott and Marissa Chien. According to them (and verified online), the United States has a tax treaty with the United Kingdom in which U.K. residents are not subject to U.S. income tax on gambling winnings. I've read contradictory information about whether backup withholding (which should be 30 percent, not 40 percent) should be taken out of the winnings. Some say that showing the U.K. passport should be enough to stop the withholding. Others say the passport and an ITIN is enough and others say the passport and Form W-8BEN is enough. Still others say one should have Form W-8BEN in addition to the passport and ITIN.

I'm going to side with Jean and Marissa and say you should cover all bases -- that is, get an ITIN and give the casino Form W-8BEN (Article 22 of the treaty deals with Other Income) whenever you hit a reportable jackpot. The easiest way to get an ITIN is to take Form W-7 to an IRS office when you're in the U.S. You can also apply at a U.S. embassy. A final option to get your ITIN is to send certified copies of your passport to the IRS; according to Jean and Marissa, you can get your copy certified at a U.S. consulate, but there may be a charge.

To get any amount withheld, file Form 1040NR -- you'll need an ITIN. U.K. residents should get the total amount withheld returned to them. There are services that will help you get your ITIN and file Form 1040NR for a fee.

Finally, Jean and Marissa suggest getting your ITIN before your trip. You'll be able to give the number when you hit a reportable jackpot and it will appear on your 1042-S. Having your number on all of your forms allows the IRS to match up all of your documents more easily.

Moving on to your second question, if the IRS lowers the reporting threshold to $600, not only will all big winnings be subject to tax, small winnings will also be subject to tax. There's still no indication what the IRS will do, but it received far more negative comments than positive ones about the proposal.

Send your slot and video poker questions to John Robison, Slot Expert™, at slotexpert@slotexpert.com. Because of the volume of mail I receive, I regret that I can't reply to every question.

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