On this page
How the Tax Treaty Handles Gambling Losses for Canadians
The tax treaty between Canada and the U.S. has a gambling losses benefit in Article XXII(3). It allows Canadian residents to deduct documented gambling losses against their U.S. gambling winnings from the same year, which most non-residents from other countries cannot do. Without this provision, the 30% withheld by the casino would be the baseline tax owed. With it, your actual taxable amount can be lower.
At U.S. Tax Recovery, we apply this treaty benefit for our Canadian clients when we prepare and file their U.S. non-resident returns. It is not applied automatically, and the figures have to match your Form 1042-S.
What Does Article XXII(3) Say?
Article XXII(3) of the tax treaty between Canada and the U.S. is the provision that governs gambling income. It gives Canadian residents the same treatment as U.S. residents for offsetting gambling losses. Losses can be deducted against winnings, but only up to the amount of those winnings. You cannot use gambling losses to create a negative income figure, so the floor is zero.
This matters because U.S. tax law treats gambling winnings paid to non-resident aliens differently from those paid to U.S. residents. Without a treaty provision, a non-resident’s winnings are taxed at the flat 30% withholding rate, and losses can only be netted against winnings from the same session. Article XXII(3) carves out an exception for Canadians, and it is the reason a refund is possible for many of our clients.
Which Winnings Does the 30% Withholding Apply To?
Not every win at a U.S. casino triggers withholding. The casino withholds when payouts cross certain thresholds, which depend on the game. This tells you which wins will appear on a Form 1042-S.
| Game Type | Withholding Threshold |
|---|---|
| Slot machines | $2,000 or more from a single jackpot (for payments made in 2026; it was $1,200 before) |
| Keno | $2,000 or more (for payments made in 2026; it was $1,500 before) |
| Poker tournaments | More than $5,000 |
| Blackjack, baccarat, craps, roulette | Generally no automatic withholding |
When a win crosses the threshold, the casino issues a Form 1042-S showing the gross amount and the tax withheld. That form is the starting point for a refund claim. You can read more about what Form 1042-S shows in our guide.
What Counts as a Deductible Gambling Loss?
Under Article XXII(3), the losses you can claim are those from U.S. gambling in the same tax year as your winnings. Losses from Canadian casinos do not qualify. Losses from a different tax year do not carry forward or back.
How Losses Are Documented
The IRS does not accept a self-reported number. Losses need documentation. The common sources are:
- A win-loss statement from the casino, covering the full tax year
- Player rewards card records showing your tracked activity
- Records of travel dates to the United States, to confirm the activity happened in the same year
Large U.S. casinos can typically provide a win-loss statement on request. It shows your net activity across all tracked play at that property for the year. If you played at several casinos, you will need a statement from each one.
What If You Did Not Use a Player’s Card?
Untracked play is harder to document. Without a player’s card, the casino has no record of your session activity, and a win-loss statement will not reflect it. The documented losses available to you may then be lower, or absent, which limits the treaty benefit. This is one reason regular U.S. casino visitors do well to use a player’s rewards card consistently.
Why the Treaty Benefit Does Not Apply Automatically
The casino withholds 30% at the time of your win and sends it to the IRS. That is finished before you leave the building. The IRS does not review your losses or apply any treaty adjustment at that stage. The 30% is simply held.
To recover some or all of it, a U.S. non-resident return has to be filed that cites Article XXII(3), reports your winnings and applies your documented losses. The difference between what was withheld and what you owe is the refund the IRS may issue. The IRS reviews the return and decides the outcome.
A mistake in the treaty citation, figures that do not match your Form 1042-S, or a missing certification can lead the IRS to reject the return or send a notice asking for more information. You can learn more about how a U.S. non-resident return works for Canadian casino winners in our guide.
One Reason to Work With a Specialist
The treaty article must be cited correctly, the loss amount must be supported by documents the IRS will accept, and the figures must match the Form 1042-S the casino filed. A valid ITIN is also needed before the IRS will process the return. U.S. Tax Recovery prepares and files this for you.
As an IRS Certifying Acceptance Agent, we also verify your passport in our office, so you do not have to mail your original passport to the IRS. You can review our refund process to see what working with us looks like.
Frequently Asked Questions
Are Canadians exempt from U.S. gambling tax under the treaty?
No. The treaty does not exempt Canadians from U.S. gambling tax. What Article XXII(3) does is allow Canadian residents to deduct documented gambling losses against their winnings in the same year, which can reduce the taxable amount. Exemption and a loss offset are not the same thing.
Can I claim losses from a different year against this year’s winnings?
No. The treaty benefit applies only to losses from the same tax year as the winnings. Losses from a prior or later year cannot be carried back or forward. Each tax year is handled separately.
What if my losses exceed my winnings?
Under Article XXII(3), losses can only offset winnings. They cannot create a negative gambling income figure. For tax years before 2026, if your documented losses equal or exceed your winnings for the year, the taxable amount is reduced to zero. From 2026 only 90 percent of your losses are deductible, so your losses would need to be at least about 111 percent of your winnings to reduce the taxable amount to zero. The excess losses do not carry over or create any additional benefit.
Disclaimer: This article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change; consult a qualified tax professional regarding your specific situation. U.S. Tax Recovery services are subject to individual eligibility.
