The World Series of Poker (WSOP) are coming fast and, as is the case every year, a large Canadian contingent will go represent the nation at the biggest poker event in the world in Las Vegas. However, everyone knows that, unlike in our country, gambling wins are taxed in the United States. This brings many questions to some players. More importantly, having the answers to the most important questions before leaving home could save you some serious headaches in the future. With this in mind, allow us to present this complete guide to poker taxation based specifically on the WSOP. We hope it makes your trip more enjoyable and your fiscal burden smaller.
WSOP taxes: the basics
An American citizen must pay taxes on any amount he/she wins at the WSOP, no matter how small the amount is. For a citizen from another country, this income tax will be perceived on any amount that reflects a net win of 5 000$ in a tournament. From 5 000$ up, an American will receive a W-2G Form, an alien will receive a 1042-S Form.
The level of taxes for an American is based on his annual revenue and his tax bracket. He/she does not pay an upfront amount but must declare his winnings to the Internal Revenue Service (IRS) on his annual filing.
For an alien, i.e. someone from another country, if his country does not have a fiscal treaty with the USA, the rate of taxation on his win will be 30% of his net win. So, a winner gets only 70% of his money when he does win, along with a Form 1042-S stating the amount won, the net amount and the federal tax deducted.
Many countries, to avoid double taxation, have included in their tax treaty with the USA some provision exempting their citizen from a 30% tax. These countries are:
South Africa, Germany, Austria, Belgium, Bulgaria, Czech Republic, Denmark, Spain, Finland, France, the Netherlands, Hungary, Ireland, Iceland, Italy, Japan, Latvia, Lithuania, Luxemburg, Russian Federation, Slovania, Slovakia, Ukraine, United Kingdom, Sweden, Tunisia and Turkey.
If you come from one of these countries, you will have to bring a W-8BEN Form filed up. By bringing this Form to the casino cashier to collect your winnings, the Rio will be able to issue you an Individual Taxpayer Identification Number (ITIN) and give you the full amount won. They will still give you a 1042-S Form. You will however not have to file to get your money as you will already have collected it.
If you are citizen of one of these countries and already have an ITIN, all you need is to give them your number and provide an ID in order to collect 100% of your win.
If you are from one of these countries and do not provide the Rio with either a W-8BEN or ITIN, the Rio will have to deduct 30%, like they do with Canadian citizens. You will be able to retrieve the 30% left behind by filing with the IRS at the end of the calendar year, explaining your legal exemption.
Specifically for Canadians…
As a Canadian citizen, you cannot escape the direct taxation of 30%. You will also receive a 1042-S Form. Here is what you should be looking for on it:
-Make sure the casino gives you one with the correct year of winning on it.
– Make sure your name and address are valid and written correctly. Same thing of course for the amounts won and deducted.
-If you already have an ITIN, even though you will still be taxed, make sure they write it in Box 13e.
-Take a picture of this Form asap and keep it in a safe place. If you can scan it, it is even better.
-Now that you know you will be filing, make sure to open a gambling log if this is not already the case and keep it updated; also, keep on file all the dates you stay in the United States.
Swapping/staking at the WSOP and their taxation
Swapping/staking is par for the course in poker tournaments. However, as far as taxes are concerned, these can rapidly turn into a nightmare if you are not adequately prepared.
Even before winning
Having assisted many poker players after such deals, let me tell you that their biggest shortcoming is the details in these deals. Often times, taxation is not even discussed as part of the deal; then after the win many conflicts are likely to happen when players have to discuss after the fact.
First, if you are going to agree on something, write it down. Make sure to specify if the split only applies to the net amount, or the whole amount, pre-taxes. Make clear that either every player will be responsible to claim its own part of taxes or if the winner will be responsible to collect it all, and then redistribute it. With a deal that lets every player responsible for his own portion of the money, it is important to understand there may be additional fees in order to have a specialized firm split the amount and issue new 1042-S Forms. Likewise hiring a firm to take care of this will involve fees. Who will take care of this? The winner only? Will it be divided between all players? Will it be divided by percentage of every participant? These should all be done with before the drop of the first card.
Sign two documents. One contract first, to at least clear the clauses mentioned before; then fill up also a 5754 Form (more details on this later on in this article). While it may never be sent to the IRS, it could serve as proof in case of an IRS verification.
Taxation on a shared win
First, let’s take a broad look. The official winner of any revenue must be hold himself responsible for the resulting taxes. Hence, if your win is to be split between many recipients, each of them must pay his own part of the taxes and report it to the IRS.
“Luckily” there is a form for this. If indeed you get a win in which you are not the unique beneficiary, all it usually takes is filling up Form 5754 and detailing how this amount has to be divided. Upon cashing out your win, you must give this form to the casino. The casino then is legally required to emit separate 1042-S (or W-2G for Americans) reflecting the information on the form.
Why the quotation marks around the first word of the preceding paragraph? Simply because WSOP systematically refuses to honour Form 5754 from the players. Many experts reckon the organisation is acting illegally, but with no one (we’re looking at you IRS) to put pressure on them, players have little recourse. There is a case pending in court, scheduled to be heard in January 2018, but for this summer, do not expect any help on this from the Rio.
However, if you win elsewhere in Las Vegas (or elsewhere in the USA for that matter), chances are excellent that Form 5754 will be accepted. It will not be the case at the WSOP but at least you will fulfill the law requirement and this might help a lot later on. Nevertheless, always present it and try to get the Rio to respect it. This is your main weapon and it is the one that will save you time, money and frustration eventually when you file.
This guide however is mainly aimed at wins in the WSOP. If the Rio refuses to split the win, the winner still must take care of business. This is where the situation might become more complex. Here are some different scenarios.
First scenario, no matter the nationality of the involved players, is to not split the win as it should be done. This method is not the most transparent one, but since it remains the most common and the simplest, we cannot ignore it. When using this method, the official winner takes the whole win on his shoulders and adds revenues to his own total, absorbing the taxes. The IRS will not mind if you exaggerate your winnings, don’t worry! The main winner can then recuperate part or all of the taxes withheld, depending on his own losses during this year. It is not possible to add on other players’ losses even if they were part of this deal. The tax return is then divided amongst the players, according to their deal.
In theory, the IRS could deny a winner this approach, for different reasons. The most evident one being the main winner could have very high losses for that year, while others swappers/stakers might have none. Ultimately, if the monies were split the right way, the IRS would get more money. It could also be if one or some swappers/stakers were Americans. An American has to report all wins/losses on his income tax report, not only the annual net gain. So this method would falsify his filing.
In real life though, since the casino refused to share the win by refusing the concept itself, we could argue, rightly or wrongly according to the IRS agent, that the agreement is null because of the Rio’s refusal to respect this sharing agreement. This is an absolute grey zone. Furthermore, to the eyes of the government, the main winner, the declared winner, is the only winner, since nothing says to the IRS there was some kind of sharing. Taking this approach thus does not represent a real risk.
Let’s take a look at different situations when it says that the win shall be shared. The win is at the World Series of Poker and the winner is responsible to proceed:
A Canadian with Canadian stakers/swappers
In this situation, the winner collects 70% of the win, pays every partner his share of the 70% and emits a 1042-S for each and one of them. He must also report the split to the IRS. Then, each player takes care of his own taxes by filing to the IRS.
A Canadian with American stakers/swappers
This is the worst scenario. Since the IRS refuse to split the Canadian win, 30% of it will be withheld and sent to the IRS. However, the American partner should not be submitted to this withholding. But there is no way around it, except for the 5754 Form, but the Rio will not accept to do this, so we are running in circles.
The Canadian will not want to pay a higher percentage on his brut win while he only received the net money; at the same time, the American cannot be happy with the net percentage because this constitutes a brut win in the eyes of the IRS, thus putting the American in a situation of possible double taxation. The IRS will not accept a refund request from the American on a withheld amount by the casino, since this info will be nonexistent in their system.
The IRS will simply tell the American to take care of this with the withholding agent (the casino), but we already know the WSOP will not want to intervene here and change their politics. So we end up with no real solution, and either the Canadian or the American will be penalized and have to pay more than he should.
The simple solution? An American should never be part of a sharing deal with a Canadian. This will be so as long as the WSOP don’t change their procedures about Form 5754. Of course many will be tempted to let the Canadian file for a maximum amount of taxes and then redistribute accordingly with the American. This method works, but it does not comply with tax rule #1, stating that each amount must be declared by its rightful owner. Without a doubt, this is the preferred method of most winners, but it is important to understand why this method is not legal.
An American with Canadian stakers/swappers (or players from any country not exempting gambling taxes)
This situation is simpler but does require some extra work from the American. Since his stakers/swappers are subject to a 30% withholding, the American winner must give 70% of their win to his partners and send the remaining 30% to the IRS. At the same time, he fills 1042-S forms for every non-American partner and gives them a copy, sending the other one to the IRS along with the withheld money. He must do this as soon as possible via EFTPS otherwise he may face penalties from the IRS.
The Canadian staker/swapper has his 1042-S Form so he can claim back what is owed to him and retrieve part or all of the money withheld.
A Canadian or American with stakers/swappers from any country exempting gambling taxes
Here is a tricky situation. As we said previously, the Rio can issue an ITIN for a winning player from one of these countries, exempting him from direct taxation, IF the player brings with him the necessary documents.
Since the Rio will refuse to split the win, the winner must do it himself. But the winner cannot issue his partner an ITIN. He does not have the authority to do so. The citizen from such a country must show the American his W-8BEN, instead of showing it to the casino.
For example, let’s take a citizen from France as such a partner; if he already has an ITIN, the winner can give him the full 100% of what he is entitled to. In return, make sure he signs a receipt and fills and gives you a W-8BEN, including his ITIN. The winner can then justify his action to the IRS. Although no money was withheld, you still must issue him a 1042-S Form.
If on the other hand this French partner does not have an ITIN, you must withhold 30% of his winning and send it to the IRS along with a copy of the 1042-S Form. This player will then have no other choice than to file with a W-7 Form to get his money back.
As you’ll have noticed, the scenarios are diverse and sometimes very complex. The player want to devote himself to his passion, to get into a fiscal nightmare in the process! It goes without saying that we suggest to any winner to contact us in case of any win during a poker tournament in the United States. We will gladly evaluate your situation for free and, in you decide to, we’ll be more than happy to deal with the entire process to recover the money you’re entitled to from the IRS.