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Many people find gambling to be great entertainment. You may have also noticed an enticing lottery jackpot and wish to join in on the fun. However, you may wonder if you are allowed to play the lottery or gamble while you are on a visa in the US? The answer is yes!
Individuals on H-1B visas can play the Powerball or Mega Millions, as well as any other lottery
Participation in the lottery doesn’t exclude non-citizens. If you meet the age requirements (18 or 21 depending on the state) and buy your ticket while your in the United States, you’re eligible to play. Additionally, lottery income is considered “passive income” and thus is permitted while on an H-1B visa.
Note that you DO need to be in the US to play the lottery. You generally can’t buy lottery tickets remotely or by mail. There are also services that can purchase lottery tickets for you or facilitate online purchases, but be wary of scams.
And what if you win? Non-citizens are able to collect lottery winnings but can experience extra barriers and significant withholding taxes.
People Working In The US On H-1B Visas Can Engage In Gambling Activities
While you are on an H-1B, you can participate in recreational gambling activities. The key word being recreational. As long as gambling couldn’t be construed as your primary form of income/employment, you can play and collect winnings without worrying about your immigration status. Taxes will be withheld and you’ll need to report all gambling winnings on your taxes.
If I am on an H-1B, can I participate in poker tournaments?
Absolutely! H-1B visa holders can participate recreationally in poker tournaments and can collect winnings. You will need to produce a SSN and an acceptable ID such as a passport or driver’s license when collecting your winnings. You may not become a professional poker player - this would violate your H-1B visa status.
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How do I claim winnings?
If you have won less than $600, you may not need to complete any paperwork to claim your winnings. For prizes over $600, you may need to show ID and provide your social security number (SSN).
If I am on an H-1B and win money from gambling or the lottery, how much do I have to pay in taxes? How do I pay taxes?
H-1B visa holders are usually considered “resident aliens” by the IRS because they normally pass the “substantial presence test”. If you’re a resident alien, you’re subject to the same taxes as a US citizen.
The payer of gambling or raffle winnings will typically issue you a W-2G Form if the winnings exceed a certain amount and if you are a resident alien, you must report all gambling winnings as “Other Income” on a Schedule 1, Form 1040 and attach that to your normal 1040.
Certain kinds of gambling winnings are subject to federal withholding taxes of 25%. These include scenarios where you make more that $5,000 from any sweepstakes (like wagering pool or a poker tournament), the lottery, or any wager where the payout is at least 300 times the amount of the bet. Your actual taxes owed may be much higher than that because withholding is different from the actual taxes you pay. In addition, you may also owe state and local income tax on your gambling winnings. If you collect less substantial winnings from things like bingo or a slot machine, you might not be subject to withholding, but the payer may require that you produce your SSN depending on how much you won. Any winnings not subject to withholding may require that you pay an estimated tax amount and regardless, you will owe taxes on your winnings when you file your taxes. An experienced financial advisor like MYRA Wealth can help you determine what federal, state, and local taxes you owe on any gambling winnings.
FYI: US residents who don’t provide a SSN are subject to a higher 28% withholding rate.
Nonresident Aliens Have Different Requirements and Tax Rates On Gambling Winnings, Depending On Your Home Country
If you are considered a non-resident alien for tax purposes (for instance if you are on an F-1 visa and don’t meet the Substantial Presence Test), you are subject to a 30% withholding tax (in 2019) on your winnings plus any state withholdings. Remember that withholding can be different from the actual taxes you owe - you may owe more come tax time or you may be able to claim a refund depending on your unique situation.
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If you are a non-resident alien, you will use 1040-NR instead of a 1040 for your federal income taxes, and will input your gambling winnings on line 11 Column D (in 2019). Residents of these countries can specify a 0% tax rate for gambling winnings in Column D: Austria, Belgium, Bulgaria, Czech Republic, Denmark, Finland, France, Germany, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Netherlands, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Tunisia, Turkey, Ukraine, and United Kingdom.
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No taxes are imposed on recreational gambling winnings paid to a non-resident alien from black-jack, baccarat, craps, roulette, or big-6 wheel. According to the IRS, if you are a non-resident alien and “If you have winnings from blackjack, baccarat, craps, roulette, or big-6 wheel, and the casino gave you a Form 1042-S showing that tax was withheld, enter these winnings on line 11, column D, and enter 0% as the tax rate. You can claim a refund of the tax.”
You might be able to further avoid taxes if your home country has a tax treaty with the US. Make sure you read the treaty for your home country, if there is one, for more detailed information. An experienced tax advisor like MYRA Wealth can help you understand the tax consequences of your gambling activities and can help you complete the necessary forms to pay your taxes or claim refunds.
If you end up losing money while gambling, you can deduct those losses in your itemized deductions on your federal income taxes. Keep in mind that with the recent changes to tax law in 2018, the standard deduction is a better option than itemizing for most taxpayers. However, if you do plan to itemize and deduct your gambling losses, there are limits. You can only deduct losses up to the gain from your transactions. For instance, you can only deduct $1000 in losses or gambling expenses (travel to the casino, for instance) if you also won $1000 in prizes. And finally, some states don’t allow you to deduct losses at all, which means you can owe a hefty state tax bill even if you lost a lot of money. Only professional gamblers can deduct losses beyond their winnings. H-1B visa holders are not allowed to be professional gamblers, so they can’t deduct losses beyond their winnings.
If I win the lottery, should I stop pursuing US Citizenship or renounce US Citizenship?
While it may sound logical to give up your ties to the US in order to avoid taxation on a windfall such as the lottery, it is not quite that simple and it is also not possible.
Regardless of your status in the US, you will be subject to federal (and likely state) withholding and income taxes on your US lottery winnings. If you opt to take your winnings as an annuity over time, you will continue to be subject to tax on these US-source winnings, even if you live abroad and remain a non-citizen. You may even be subject to higher withholding since you will be a non-resident alien if you cut ties to the US and live abroad.
If you are already knee-deep in the process of pursuing citizenship and you seek to back out of that process, you may find that you are subject to the expatriation tax on your other assets, more commonly known as the exit tax. The expatriation tax is a tax that some US residents have to pay when they decide to give up their citizenship or their green card. Any untaxed income you may have is measured and then a final tax bill is produced and is to be paid before you leave for good. Think long and hard before making the decision to leave your US residency behind.
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While you would not be able to avoid the tax and withholdings on the actual winnings whether paid as a lump sum or over time, the one benefit of not pursuing citizenship or giving up US citizenship is that you may be able to avoid US capital gains taxes on the investment growth you could receive from investing your lottery windfall. If your home country or new country where you are investing your new assets does not tax capital gains or taxes them at a lower rate, you may be able to avoid ongoing capital gains tax on your investment growth which could be substantial.