Tax Question for Foreign Students in the US

[MexKrax]

I am currently an international student in the US on an F1 visa. Therefore, according to the IRS I am a non-resident alien. As a non-resident alien I only have to pay taxes on US sourced income. From what I've read on the IRS website it seems to me that online poker winnings are not US source income and therefore I do not have to pay taxes to the US goverment on my poker winnings.

Is there anyone out there why knows more about filing non-resident taxes in the US? Am I correct that I don't have to pay taxes to the US government on my poker winnings? If anyone has any information on this either way I'd really appreciate hearing it.

[fluff]

I think your situation is unique enough that you probably won't get a knowledgable response here. It might be best to consult a tax professional.

[teddyFBI]

I am in precisely the same situation as you, and have researched that very topic extensively. The key question, as you have synthesized, is whether online poker qualifies as a US-source income.

Check out the charts on this page:
http://www.payroll.ucla.edu/alien/c1usin...es-nonresidents

Here's the problem: online gambling doesn't really fit into any of those categories (employment, or independent personal services are the closest, but even those aren't perfect matches). If indeed it does fit under one of the above two categories, then the source is determined by "where the services are performed". We hit another complication here: Is gambling really performing any "service"?? Not really -- if you were determined to qualify what the "service" actually is in this activity, then it's really the service the poker site and its servers are providing to the player! And those are located in a foreign country.

Regardless, I've talked informally to several lawyers and accountants about this, and most of them have told me that it's too grey an area to say either way, and there's definitely no case law on this yet. Also consider the tax laws of your home country. Even if you're not responsible for US taxes, you will be in your home country (if poker winnings are taxable there). Lastly, does your home country have a tax treaty with the US? Treaties are designed to prevent double-taxation...so if you DO declare your winnings on your home country tax forms, that MAY mitigate how harshly the IRS deals with you if they disagree. Just remember that most lawyers or accountants will tell you to err on the side of caution and pay taxes to the IRS on your winnings...but that doesn't necessarily mean it's the correct thing to do, rather that they think more often than not it's the easy / safe way out.

I actually started playing while on an F-1 visa, however I never cashed out to an American bank account so my income wasn't officially in the US. I did however, inquire about the legality of me playing as a professional in the US. According to a labor law professor at my school, F1 visa students without an employment authorization card (EAC) from DHS shouldn't even try to claim taxes as an professional gambler or even cashout to American accounts. Since your primary purpose of being in the US is to go to school you shouldn't be working full time without a permit, even as an independent contractor (which is essentially what poker players would fall under).

Since tax laws in the US and the IRS are difficult to deal with a lot of times i'd suggest you either see a tax professional (assuming you make enough) or simply cashout back home and pay taxes there.

[teddyFBI]

[ QUOTE ]
I actually started playing while on an F-1 visa, however I never cashed out to an American bank account so my income wasn't officially in the US. I did however, inquire about the legality of me playing as a professional in the US. According to a labor law professor at my school, F1 visa students without an employment authorization card (EAC) from DHS shouldn't even try to claim taxes as an professional gambler or even cashout to American accounts. Since your primary purpose of being in the US is to go to school you shouldn't be working full time without a permit, even as an independent contractor (which is essentially what poker players would fall under).

Since tax laws in the US and the IRS are difficult to deal with a lot of times i'd suggest you either see a tax professional (assuming you make enough) or simply cashout back home and pay taxes there.

[/ QUOTE ]

I appreciate your input on this, but I feel obligated to reply that a lot of that advice is simply incorrect (although I know you didn't present it as fact). The labor law prof unfortunatley didn't know what he was talking about. Employment authorization as a student has nothing to do with gambling...it was probably your prof's best guess, but he is far out of his element on this one.

[MexKrax]

Thanks for the reply, but I'm pretty sure that doesn't apply to me. I'm not considering filing as a professional gambler if I do have to include my gambling income on my US taxes. As for not cashing out to a US bank account that may have been a good idea, but sadly the boat has sailed on that issue for me.

I did some combing of the IRS website and the only information I could find on gambling related income that applies to non-resident aliens was a reference to winnings form horse or dog races. Although there's good news there if you're filing form 1040NR, "Winnings from horse or dog races in the United States are excluded from your income if they are from a legal wager you made after October 22, 2004, outside the United States in a parimutual pool."