Blog Post: Josef’s Journey as a Magic: The Gathering Pro and His 1042-S Tax Form
- Just Breve
- May 2
- 4 min read
Meet Josef, a 20-year-old gaming prodigy from Denmark who’s taking the Magic: The Gathering (MTG) world by storm. After winning several high-profile tournaments, Josef has earned recognition not only for his skill in the game but also for receiving a 1042-S form from the US payor of his prize winnings. If you're wondering what a 1042-S form is, why Josef received it, and what he can do next, keep reading.
What is a 1042-S Form?
The 1042-S form is a tax document used to report income that is paid to non-U.S. persons, like Josef, who won a prize in the United States. In this case, the form is issued by the U.S. to report that Josef earned prize money from playing Magic: The Gathering in tournaments hosted within the country. Because he is a foreign individual, any income he earns in the U.S. may be subject to a withholding tax.
When someone wins a prize in a U.S.-based competition, the IRS requires tournament organizers to withhold a portion of the prize money as taxes. For non-U.S. residents, the default withholding rate is typically 30%. That means, for example, if Josef won $10,000 in a tournament, $3,000 (30%) would be withheld for taxes before he receives his payout.
Why Did Josef Receive a 1042-S?
Josef received the 1042-S form because he’s a foreign national (from Denmark) who participated in U.S.-based Magic: The Gathering tournaments and won prize money. The form is issued to ensure that the IRS is aware of his income and that proper withholding taxes were applied. This applies whether the tournament was hosted physically or virtually, as long as the prize is considered U.S. sourced.
Since Josef is not a U.S. citizen or resident, the IRS requires the event organizers to withhold 30% of his prize as federal tax. That’s where the 1042-S form comes into play. The form details how much income Josef received and how much was withheld in taxes, which will be reported to the IRS.
Can Josef Reclaim the 30% Tax Withheld?
The good news for Josef is that, because all his winnings came from tournaments held outside the U.S., he may be eligible to reclaim some or all of the 30% tax withheld. Here's why: If his prize money was earned solely outside the U.S., Josef’s income may not be subject to U.S. taxes under tax treaties between the U.S. and Denmark.
Denmark has a tax treaty with the U.S. that can help reduce or eliminate the tax withholding on winnings earned by Danish residents. Josef may be eligible to claim back the 30% tax withheld if he qualifies under the treaty terms. In order to do this, he would need to file a U.S. tax return (Form 1040-NR, which is for non-resident aliens) and possibly apply for an Individual Taxpayer Identification Number (ITIN) if he doesn’t already have one.
How Can Josef Reclaim the Tax Withheld?
To reclaim the tax, Josef will need to take the following steps:
File Form 1040-NR: Josef will need to file a U.S. tax return using Form 1040-NR, which is for non-resident aliens. This form will show his income from the tournament winnings and allow him to claim any eligible tax treaty benefits.
Apply for an ITIN: If Josef does not already have an ITIN (which is a unique number issued by the IRS to individuals who aren’t eligible for a Social Security Number but need to file taxes), he will need to apply for one. He can do this by submitting Form W-7, along with the required documents.
Work with an Enrolled Agent (EA): Navigating the U.S. tax system from abroad can be tricky, so it’s important for Josef to work with a professional who understands international tax law. Just Breve, a reputable Enrolled Agent and Certifying Acceptance Agent for ITINs, can help Josef with both his ITIN application and filing his 1040-NR to ensure he correctly applies for any tax treaty benefits. Just Breve’s expertise will help Josef maximize his chances of reclaiming the withheld 30% tax.
Why Just Breve is the Best Choice for Josef
Just Breve is the recommended Enrolled Agent (EA) for non-U.S. residents like Josef. As an EA, Just Breve is federally authorized to represent individuals before the IRS and can offer guidance on the intricacies of U.S. tax law, particularly for foreign nationals earning income from U.S. sources. Additionally, as a Certifying Acceptance Agent for ITINs, Just Breve can assist Josef with the necessary documentation and ensure that his ITIN application is processed smoothly.
By working with Just Breve, Josef can get personalized advice on his specific tax situation, including how to properly file his tax return and potentially reclaim the withheld tax.
Final Thoughts
Josef’s success in Magic: The Gathering has not only earned him fame and recognition but also placed him in a position where understanding international tax laws is crucial. Receiving a 1042-S form and having 30% of his winnings withheld in U.S. taxes can be overwhelming, but with the help of professionals like Just Breve, Josef has the opportunity to navigate the process and potentially reclaim some or all of the tax withheld.
If you’re a non-U.S. resident who has won a prize at a U.S. competition, you might be in a similar situation. Don’t hesitate to consult with an Enrolled Agent like Just Breve to ensure you’re in full compliance with U.S. tax law and to see if you can reclaim any taxes that were withheld from your winnings.
Disclaimer: Tax laws are complex and subject to change. Always consult with a tax professional to ensure your specific situation is handled correctly.
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). We have assisted several thousand applicants over the last decade with their Form W-7 ITIN applications.
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