When Are Prize Winnings From Raffles, Sweepstakes And Contests Taxed?
The IRS has unusually complicated rules for the taxation of a prize, contest, raffle and
sweepstakes win for non-resident gamblers in the United States. The IRS taxes
prize winnings when both of the following criteria are fulfilled:
- The prize winnings (or equivalent cash value) are at least $600.00 USD above the original wager; and
- The prize winnings are at least 300 times the cost of the original wager.
For instance, if you purchased a raffle ticket for $2.00 USD in the United States and have prize winnings of $600.00 USD, you will not have any raffle tax assessed, as the value of the initial wager ($2.00 USD), is subtracted from the value of the raffle win ($600.00 USD), resulting in a net of $598.00 USD, slightly less than the minimum threshold of $600.00 USD for taxes on prizes.
Similarly, if you purchased a raffle ticket for $300.00 USD and have won a prize of $750.00 USD, you will also not have any prize tax assessed because the value of your raffle win is less than the 300:1 ratio minimum threshold for the raffle tax.
Having described two scenarios where you have escaped taxes on prizes, let us go through a scenario where you will be assessed raffle tax on your prize winnings. If you bought a raffle ticket for $100.00 USD and subsequently win a car, with an equivalent cash value of $35,000.00 USD, you will have raffle tax assessed at a rate of 30% of your raffle win. In this scenario, both criteria listed previously are fulfilled. You have won more than $600.00 USD above the original wager ($100.00 USD subtracted from $35,000.00 USD cash value of your car results in a net raffle win of $34,900.00 USD) and your raffle win is more than 300 times the cost of your original wager (300 multiplied by $100.00 USD wager is $30,000 USD). In this case, your assessed raffle tax of 30% is $10,470.00 USD (30% of $34,900.00 USD).
Sometimes the value of prize winnings is difficult to assess. For example, you may have been awarded air miles points. Depending on the circumstances, the taxes on prizes may be assessed at retail value (e.g., the customer's cost of purchasing an equivalent value of air miles), or it may be assessed at the cost to the provider (e.g., the airline's costs of procuring the air miles). Or if you are lucky, prize tax may not be assessed at all.
To make things even more complicated, some Indian tribal casinos and gambling establishments in the United States may assess the 30% prize tax on all prize winnings (without the need to meet a specified threshold or ratio) for US non-residents. As you can see, it is not always black or white as to whether or not you will be subject to prize tax from the IRS.
How Do I Reclaim My Prize Taxes Back From The IRS?
Taxes on prizes, contests, raffles and sweepstakes wins is 30%. These
prize taxes can be partially or wholly reclaimed if you have gambling losses in the same taxation year to claim against your
prize winnings.
To substantiate your gambling losses to the IRS, you should always keep a log of your gambling wins and losses while in the US. A record of the time, location, machine, the amount of wins/losses can all be accepted as evidence of your gambling activity. Furthermore, old lottery tickets, bingo sheets, airline tickets, hotel receipts (as evidence of your travel to US gambling destinations) can all be used to justify your gambling losses.
In addition to the previously mentioned documents, you will also need IRS form 1042-S, which was issued at the time of your win. If you have lost or misplaced this form, you can attain a copy of the form from the original issuer.
Prize, Raffle, Contest And Sweepstakes Winners: U.S. Gambling Refund ™ Can Help You!
The IRS tax codes are complicated and vague for the layperson to understand. US Gambling Refund ™ is an IRS Certifying Acceptance Agent, with knowledge of both US and Canadian tax codes. We can ensure the most efficient and comprehensive tax refund from the IRS. Both Canadian and international visitors to the US are eligible to have all or part of their
prize taxes refunded. US Gambling Refund ™ has a no refund no fee guarantee! We can help you reclaim your
prize taxes from the US government.
If you have been assessed
prize taxes or simply want more information, contact us now to see how we can help you get back your
prize winnings!
