Premium Bond winnings and US Tax
 

What is the tax situation for a USC living in the UK as far as premium bonds winnings?

This old thread didn't seem to be very conclusive.
http://britishexpats.com/forum/showthread.php?t=309717

My thoughts are that the winnings would be treated as bank interest since the tax free income from cash ISA's are taxed in the USA as interest. However, since it is a form of prize-linked savings would the IRS treat the winnings as gambling, even though it is not really gambling since you can never lose your stake money?

It was so successful when tried in one State in the USA that the government shut it down after initially approving it. The reason being that it re-directed too much money away from the State lottery.

http://en.wikipedia.org/wiki/Prize-L...avings_Account

http://freakonomics.com/2012/04/26/l...radio-podcast/

Re: Premium Bond winnings and US Tax
 

I have no idea, sorry, but I'm wondering if this might get more responses if it was posted in the USA section?

Re: Premium Bond winnings and US Tax
 

Good idea, I'll ask the Moderators if they will move it.

Re: Premium Bond winnings and US Tax
 

If I ever win, with my £15 of bonds, it's going down as interest on foreign government securities, because that's what a premium bond is. :nod:

Re: Premium Bond winnings and US Tax
 

Gambling winnings should be declared on line 21 of form 1040 (other income). Since the Premium Bonds operate as a de-facto lottery where only the interest (rather than the capital) is at stake, this seems to be the best fit. It's not clear why anyone would want to declare this kind of income as interest instead.

http://www.irs.gov/uac/Gambling-Winn...Taxable-Income

Re: Premium Bond winnings and US Tax
 

Because (i) it is a bond, (ii) the aggregate value of winnings is a function of the outstanding value of bonds and the prevailing interest rate on government bonds, and (iii) there is no capital at stake (yes, I get the point about interest being the stake, but whichever way you slice and dice it, a premium bond is a polygonal peg being driven into a round hole). :)

Re: Premium Bond winnings and US Tax
 

Those were my thoughts as well. Normally with gambling, you would offset losses against winnings each year, but how would you calculate lost interest.

DW had an uncle die recently and in his estate is £22k worth of premium bonds which are pretty much 100% certain to be returning prizes most years, although obviously not "the big one" from the size of the estate.

Re: Premium Bond winnings and US Tax
 

If I remember correctly, premium bonds can't be transferred, on death or otherwise, they have to be redeemed. If DW wants premium bonds she'll have to repurchase newly issued ones using her inheritance.

Re: Premium Bond winnings and US Tax
 

Oh yes, understood, it was just the fact that he had them got me to thinking about the IRS tax implications for USC's owning them. I'm sure the lawyer will be cashing them in before dividing up the estate 7 ways.