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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am a Canadian citizen living in Canada. I won a prize on

Resolved Question:

I am a Canadian citizen living in Canada. I won a prize on the Price is Right and had federal and California state taxes withheld. I have a form 1042-S. How do I file a return?
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.

What was the value of your prize and how much tax did they withhold?

Customer: replied 8 years ago.
Gross income on 1042-3 form is $1748
federal tax withheld $524.40
California state ax withheld $122.36

Expert:  Merlo replied 8 years ago.
Hello againCustomer

Unless you are a US citizen, the withholding rate on your price would be 30% for federal tax and 7% for California tax, which is exactly what they withheld from you in taxes.

That being the case, there is no need for you to even file a tax return here in the US, as there would be no additional tax due, and there would be no refund due.

If this was helpful please press the Accept button.

Thanks for using JA.

Customer: replied 8 years ago.
Merlo. My understanding is that they only withheld the tax in case I owe tax at years end as an American income earner. Since I am not am American income earner I am not subject to American income tax and therefore am entitled to a 100% refund on the withheld amount. I should be able to get the entire $646.76 back if I file a return.
Please dig a little deeper.
Expert:  Merlo replied 8 years ago.
Hello againCustomer

The information you were given is not correct. If you stop and think about what they told you, it would not even make any logical sense. If this money was not taxable to begin with, then what would it have to do with whether or not you earned income here?

Even though you are not a US citizen, and have no earned income here in the US, you have received income from a US source, and that is taxable to anyone who receives it. That is exactly why they withhold these taxes at the full tax rate of 30%. When someone who is not from the US wins a prize or is paid other money, the IRS would never have any assurance of collecting tax on that money unless they withheld the tax at the time of payment. Because not many people who were not citizens of this country would ever end up filing a return and actually paying the tax.

Even people from another country who do business with companies here in the US must have 30% withheld from their payments by the US company. It is the IRS law.

I hate to give you news that you probably did not want to hear, but any money you receive from a US source is subject to 30% federal tax, and the applicable state tax, which in California is 7%.

Customer: replied 8 years ago.
Hey Merlo am I a non-resident alien?

Too bad. I thought that cash was coming back. Oh well. I've got a nice rug and a great story to tell.
Expert:  Merlo replied 8 years ago.
Hello againCustomer

Yes, according to IRS tax classifications, you are considered to be a non-resident alien for tax purposes. That is what determines the 30% tax rate.

I wish I could have given you better news, but I am at least glad you won something. I'd give anything just to get a chance to go on that show, so it's nice to talk to someone who did and who won something.

Thanks again.
Merlo and 2 other Tax Specialists are ready to help you
Customer: replied 8 years ago.

Cool beans Buddy. Thanks for the advice.