Navigating U.S. Tax Withholding for Non-Resident eSports Players: A Guide to Reclaiming Overpaid Taxes
The world of eSports has grown exponentially over the last decade, attracting players from across the globe to compete for massive prizes in online tournaments, live events, and streaming platforms. While the rewards of being a professional eSports player can be substantial, so too can the complexities around taxes—especially for non-resident players who compete in events held in the United States.
For eSports athletes based outside the U.S., the tax situation can be tricky. One of the most common issues faced is the withholding of U.S. taxes on winnings, even if the player never sets foot on American soil. In this blog, we'll break down the process and offer guidance on how non-resident eSports players can reclaim taxes that were unnecessarily withheld from their winnings.
Understanding U.S. Tax Withholding for Non-Resident eSports Players
When a non-resident eSports player competes in a U.S.-based tournament, the Internal Revenue Service (IRS) requires that a 30% tax be withheld on their prize money. This withholding is standard practice for non-U.S. citizens who earn money from U.S. sources. For example, if a player wins a $100,000 prize in a major event held in the U.S., the tournament organizers must withhold $30,000 before disbursing the winnings, even if the player competed from their home country and never traveled to the U.S.
This automatic withholding can seem unfair, especially if the player has no U.S. tax liability. The good news is that non-resident eSports players can reclaim these withheld taxes, as long as they follow the correct process.
Steps to Reclaim U.S. Taxes Withheld on eSports Winnings
If you've found that 30% of your eSports winnings were withheld, there’s a way to get some or all of that money back. Here’s a breakdown of the process:
1. Determine Your Tax Obligations as a Non-Resident
The first step is to understand whether you are truly a non-resident for U.S. tax purposes. In most cases, non-residents are individuals who do not meet the "substantial presence test," which typically applies to individuals who are physically present in the U.S. for 183 days or more over a three-year period. If you’ve never been to the U.S. for a tournament or event, you’re likely considered a non-resident, and the 30% withholding tax applies to your U.S.-sourced income.
2. Obtain a U.S. Individual Taxpayer Identification Number (ITIN)
To claim a refund for the withheld tax, you'll need to file a U.S. tax return. However, you cannot do this unless you have a U.S. Individual Taxpayer Identification Number (ITIN). This number is issued by the IRS and is required for any non-resident who is subject to U.S. tax reporting. If you don’t already have an ITIN, you can apply for one by submitting IRS Form W-7 along with your tax return.
3. File the Correct Tax Forms
Once you have your ITIN, you can file your U.S. tax return using Form 1040-NR, the U.S. Nonresident Alien Income Tax Return. This form is specifically for non-residents who earn income in the U.S. In this case, you will report your eSports winnings and any tax withheld (the 30% you want to reclaim).
Form 1040-NR will ask for details of your earnings and tax withheld, including the amount of prize money and the U.S. tax that was withheld.
You will also need to attach Form 8833 (Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)) if you qualify for any exemptions under a tax treaty between your home country and the U.S. Some countries have agreements with the U.S. that may reduce or eliminate the withholding tax on certain types of income, including eSports winnings.
4. Check for Tax Treaty Benefits
Depending on your home country, you might be eligible for tax treaty benefits that reduce the U.S. withholding rate. Many countries have tax treaties with the U.S. that offer preferential tax treatment, which could mean that instead of the standard 30% withholding rate, you might pay less—sometimes as little as 0% to 10%.
For example, if you’re a citizen of a country that has a tax treaty with the U.S., you may be able to use that treaty to reduce your withholding rate. However, you will need to provide documentation of your treaty eligibility, and the tournament organizers may need to be involved in providing the correct forms.
5. Submit Your Tax Return and Wait for a Refund
After submitting your Form 1040-NR along with the required documents (such as Form W-7, Form 8833, and any relevant tax treaty documents), the IRS will process your tax return. If the IRS determines that too much tax was withheld from your prize money, they will issue a refund.
It can take several months for the IRS to process the refund, so patience is key. You can track the status of your refund through the IRS website or by contacting them directly.
Tips for eSports Players to Avoid Overpaying Taxes in the Future
While claiming a refund for overpaid taxes is possible, there are ways you can minimize this issue in the future:
Know Your Tax Treaty Benefits – If your home country has a tax treaty with the U.S., always check if you’re eligible for a reduced withholding rate before competing in U.S.-based tournaments. This could save you a significant amount of money upfront.
Work With a Tax Professional – The tax laws surrounding non-residents and eSports income can be complicated. Working with an accountant or tax professional like Just Breve who is familiar with international tax laws and eSports can ensure that you’re paying the right amount of tax and claiming all the appropriate deductions and credits.
Consider Your U.S. Tax Obligations – If you plan to play more regularly in U.S.-based tournaments, you may need to consider your overall U.S. tax obligations, including whether you need to file taxes annually or withhold taxes at a different rate.
Conclusion
The process of reclaiming overpaid U.S. tax on eSports winnings may seem daunting, but it is entirely possible for non-resident players who have had 30% withheld on their prize money. By obtaining an ITIN, filing the correct tax forms (Form 1040-NR), and potentially utilizing tax treaty benefits, eSports athletes can reclaim their hard-earned money and minimize the impact of unnecessary tax withholding.
As eSports continues to grow as a global phenomenon, understanding the tax implications for international players will be essential. By staying informed and working with tax professionals, you can ensure that your focus remains on your game, not on taxes.
Happy gaming and tax filing!
Can Just Breve help?
Yes, we can. Just Breve is a US tax accounting firm, assisting non-US persons with their US tax filing requirements, including filing a 1040NR and obtaining an ITIN. We assist in applying for a new ITIN or renewing an existing ITIN. We are a certifying acceptance agent (CAA) and have a contract with the IRS to help with Form W-7 ITIN applications (and EIN applications).
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