American Taxes for Canadian Prize Winner

My wife (a Canadian like myself) recently won a large number of travel rewards points from an American chain of hotels. Help us determine if the prize is worth keeping considering what we'll have to pay in taxes to the IRS.

We have confirmed the legitimacy of the prize. (The contest was handled by ePrize and we've been in direct communication with a rep from the hotel chain.) To redeem the prize we have been asked to fill out an IRS W8BEN Foreign Status form. The instructions for the form state that "Foreign persons are subject to U.S. tax at a 30% rate on income they receive from U.S." Unlike casino winnings (for which the 30% tax can be recouped by a Canadian winner) I cannot find any information on the foreign tax liability for points-based sweepstakes.

When asked about taxes, a representative from hotel chain said the following: "Although I cannot provide you with tax advice, it is likely that your tax liability will not be based on the published retail value of the points, but instead based on internal costs to provide the points."

The published retail value of the points was $35,000 and we've been told that the internal cost will be around $15,000. The points can be cashed in for approximately 12 round-trip overseas flights, or (for the sake of monetary comparison) converted into $10,000 worth of Amazon gift-cards.

So here are my questions:

• Have you been in a similar situation? Care to share your "Canadian winner of US sweepstakes" taxation experience?
• Can you suggest a firm to contact that will know how to deal with this situation? (So far the Canadian tax advisers we've contacted haven't been overly helpful.)
• Should we accept the prize, even if it means paying $4,500 to $10,500 USD? (The former being tax on internal costs, the later being tax on the retail value of the points.
• If we accept the points and are surprised with a giant tax bill (say the full $10,500) can we return the prize to avoid the taxation?

wg.

sounds like its paying taxes ON $15,000 right? so 30 percent of that would be $4500 and if its worth $10,000 you would profit $5500?

but if you accept the prize, im 99.9 percent sure you cant return it later on if you find out the taxes are going to be higher...

if you can find a tax attny knowledgeable about this, it shouldnt cost more than a few hundred to have them research it. might be worth it just to make sure.

You really should contact a tax professional, but here goes my 2 cents regardless.

For the IRS, sweepstakes income is just income. It is filed on your tax forms as Misc. Income. There are no special taxes, percentages, or whatever. It is simply added as income to the line 21 on the 1040NR and you pay taxes on the whole thing at whatever rate you are in.

As a Non resident alien, you would ONLY file the taxes on the income generated FROM the US. You can claim 1 deduction for yourself, so that would be 15k-$3650, making the income $11,350. On income of $11,350 the taxes are $1,305. According to the tax table in the back of the instructions for the 1040 NR.

This explains sweepstakes winnings which are NOT gambling winnings: http://www.law.msu.edu/clinics/tax/lump_sum.pdf

Fill out the tax form HERE and see how much taxes you would have to pay:

http://www.irs.gov/pub/irs-pdf/f1040nr.pdf

The instructions are here: http://www.irs.gov/pub/irs-pdf/i1040nr.pdf

It just is easier to figure your taxes by going straight to a tax form and start filling it out, reading the instructions as you go, or calling the IRS for help.

Actually, having read the instructions, it looks like you can claim an exemption for both wife and you. But read the line by line instructions and fill out the tax form and see what happens.

Originally Posted by stungeye [size="3"] When asked about taxes, a representative from hotel chain said the following: "Although I cannot provide you with tax advice, it is likely that your tax liability will not be based on the published retail value of the points, but instead based on internal costs to provide the points." The published retail value of the points was $35,000 and we've been told that the internal cost will be around $15,000. The points can be cashed in for approximately 12 round-trip overseas flights, or (for the sake of monetary comparison) converted into $10,000 worth of Amazon gift-cards.

Although I'm not Canadian, I'm going through the same thing with a prize I won. The sponsor believes that I should only be paying taxes on the internal cost of the prize.

The thing is, they aren't the IRS. And they won't be able to back you up if they aren't 100% correct. I am in the process of making sure the sponsor communicates with JA so that they correct the 1099 (or equivalent for you). That way you have more validity to the lower tax because the lower value is proven by 1099. I would think if you got the higher 1099 and tried to adjust to the lower, you might be less successful and there might be flags raised.

If they are willing to adjust the 1099, I think you should be okay, as that is what the IRS goes by. That said, I'm not a tax attorney. I'm looking into one myself. If they adjust, it would probably be worth it. If not, you will be paying taxes at the same amount as the "real" value (as in usage) and it wouldn't be any deal at all.

As far as accepting it, then returning if it's an issue....not going to happen. Once it's yours, it's yours and you are responsible for the taxes.

And congrats....I entered that one too.

We are going to cook your bacon

I think some of it depends on how much traveling you're able to do. I don't enter for a lot of airline miles prizes, because my husband and I have a limited amount of time off each year AND we can't afford to pay the hotel and other costs associated with the travel. If you plan to do a lot of travel, and this can save you money on airfare, it's probably a good deal just to pay the taxes.

Auriette

I'd contact a government office to find out why a Canadian would be required to pay taxes on a U.S. win...don't you need a social security number in order to do so? I've never heard of anyone ever paying taxes on a win yet and even when I have won U.S. contests, I've never been asked to pay anything at all (although the highest value was $500 USD cash and a guitar ages ago)

Let me ask what I am sure others are wondering. Knowing what eprize was showing the ARV was on this prize, why did you enter it if you didn't want to pay taxes on such a large prize?

Like you said, even if they give you the internal price, the taxes are approx $4500.

Not fair to those of us that WOULD accept the prize knowing we would need to pay approx 1/3 of price on taxes.

Originally Posted by bergbon Let me ask what I am sure others are wondering. Knowing what eprize was showing the ARV was on this prize, why did you enter it if you didn't want to pay taxes on such a large prize? Like you said, even if they give you the internal price, the taxes are approx $4500. Not fair to those of us that WOULD accept the prize knowing we would need to pay approx 1/3 of price on taxes.

My husband is a Canadian, and he would enter because Canadians do not pay taxes on wins. I have never heard of any Canadians asked to pay?

Originally Posted by bergbon Let me ask what I am sure others are wondering. Knowing what eprize was showing the ARV was on this prize, why did you enter it if you didn't want to pay taxes on such a large prize? Like you said, even if they give you the internal price, the taxes are approx $4500. Not fair to those of us that WOULD accept the prize knowing we would need to pay approx 1/3 of price on taxes.

never heard of a Canadian ever paying taxes on a U.S. win
I am wondering if its because its a point thing?
seems very strange
can Canadians even file without a social security number? don't you have to have a green card or something first?

I had never heard of this either, and I definitely think you need to consult a tax professional to make sure that you don't end up getting hosed on this.

But in the meantime, I googled and found at least two sets of sweep rules that make it seem as if it isn't completely out of the ordinary.

6. TAXES. All federal, state, provincial, territorial, and other tax liabilities, including but not limited to sales and use taxes, goods and services taxes, excise taxes, income and withholding taxes, customs duties, fees and like amounts in connection with a winner’s award, acceptance or use of a prize arising from this Sweepstakes are the sole responsibility of each winner. Winners will receive an IRS Form 1099 reflecting the actual final retail value of his/her prize. Canadian citizens will not receive an IRS Form 1099, but state and federal tax withholdings may still apply. If winner is a Canadian resident, he/she will be responsible for all personal tax liabilities or filings as may be required under Canadian law.

http://www.ti-mathnspired.com/sweepstakes/

GENERAL: All federal, provincial, state and local taxes on prize and all expenses related to acceptance and use of prize, not otherwise specified, are the sole responsibility of winner. Winners of prizes valued at US$600 or more will be issued an IRS 1099 Form for the value of the prize. In the event of a Canadian winner, Sponsor will deduct any applicable withholding taxes imposed by the U.S. and applicable state governments from value of prize award and the value of the prize to be awarded will be adjusted accordingly.

http://www.popularwoodworking.com/winshop/rules.asp

On the other hand, when my son won a truck through a cartoon network, one of the first things the woman who called informed me of, was that we would be required to pay the estimated federal taxes through them, upfront,before the prize would be awarded. It was basically non-negotiable. If we didn't agree, they would move on and choose the next winner.

Now I know I've never heard of that before, and I had won a car before and we certainly didn't have to pay taxes to the contest sponsor, before receiving the car. But we basically had the choice of just paying it, which we would have had to do anyway, sooner or later, or hiring an attorney and fighting it, which didn't seem to make sense.

So as it was a reputable sponsor and I had checked out phone numbers, addresses and employee names to make sure they were legitimate, we just went ahead and paid it upfront. But the long and the short of it is, I think that there is a lot of conflicting advice out there, even among tax professionals, add into that mix, two different country's tax rules and you have a complete mess.

dunno about that...

BUT, if you gotta pay IRS like us- then you can deduct expenses like us. I imagine travel TO the US is pretty pricey? I imagine that it might total out to BE around 30% if not more... And, since your money is worth more than ours- I imagine you will in general come out ahead of the game by submitting any & all expenses you incur on sweeping.

Originally Posted by cpnqn dunno about that... BUT, if you gotta pay IRS like us- then you can deduct expenses like us. I imagine travel TO the US is pretty pricey? I imagine that it might total out to BE around 30% if not more... And, since your money is worth more than ours- I imagine you will in general come out ahead of the game by submitting any & all expenses you incur on sweeping.

Nope, can't be done....gambling expenses can be offset on gambling winnings, sweepstakes expenses cannot be offset on sweepstakes winnings, unless you are doing a sweepstakes "business", but I'm sure the IRS will be looking in to THAT area of your finances with more than just a passing glance, so proceed in to THAT area carefully.
from a previous thread here:

http://www.irs.gov/newsroom/article/...175963,00.html

deducting sweep "expenses"( sorry, too many different factors to consider (is sweeping a hobby or a business?), so not listing any particular link):

http://search.irs.gov/web/query.html...=18&search.y=9

Congratulations to you for winning!!!