For the first time ever, Puerto Rico has a Powerball winner — with a whopping $188 million jackpot. And the island is celebrating.
The winning ticket holder will get one-third of the $564 million jackpot, the third-largest in Powerball history and the fifth-largest U.S. lottery prize.
But one mystery remains — will the winner pay federal taxes on the prize, or will he or she be exempt, as has always been the case there? Lottery officials in Puerto Rico said they still have no answer to that question.
Powerball only started operating on the U.S. territory in October of last year and the near miraculous win has surprised everyone — including the Puerto Rican Lottery (Loteria de Puerto Rico).
"We asked the IRS that same question in October, but we haven't received an answer yet," Antonio Perez Lopez, Assistant Secretary of the Lottery in Puerto Rico, told Fox News Latino. "We are still waiting, so we don't know."
IRS officials did not immediately respond to calls seeking comment.
Puerto Rico's tax code exempts Puerto Ricans from paying federal taxes on local income. The island has the discretion to set the local tax.
This peculiarity has been a magnet for U.S. millionaires, who increasingly are finding ways to spend at least 183 days a year on the island in order to become a "bona fide resident" and benefit from Section 933 of the U.S. tax code, which exempts residents of Puerto Rico from paying U.S. income tax on their Puerto Rico-sourced income.
The winner will definitely have to pay a 20 percent state taxes to comply with a 1989 lottery law that requires them to pay taxes based on how much they win. But if they have to pay federal taxes on top of the state tax, they would pay at least an additional 25 percent of their earnings to the IRS.
What is unclear is whether Powerball lottery winnings would qualify as "income received from sources outside Puerto Rico" and would be subject to paying local taxes or whether it would be considered a "local source" because the ticket was purchased in Puerto Rico.
According to the FAQ section on Powerball's website, "federal tax is deducted from your lottery winnings before you receive your payment." There is no disclaimer for Puerto Rico or exceptions for Puerto Rico in this explanation.
Gabriel Hernandez, a tax partner with the San Juan office of BDO Puerto Rico, said the "source" is where the ticket was purchased and the rules that apply are the ones of the state.
"Therefore, here it applies the maximum rate of 20 percent in Puerto Rico and tax-free for federal purposes," he said.
As of midday Thursday, nobody had yet claimed the prize at the Shell gas station, in Ponce, where the Powerball ticket was sold. There is always the chance, of course, that the ticket holder is a tourist or non-resident and therefore would not luck out on the tax exempt.
According to Perez, the lottery official, the highest lottery ever won in the island was $32 million, three years ago.
Yomari Rentas, one of the clerks at the Shell gas station in Ponce, said nobody in the business, including the owner, is aware if the store will receive any money for selling the winning ticket.
Puerto Rico lottery officials say the winner can choose between a lump sum payment of $101.6 million or 30 payments over 29 years.
The other winners of Wednesday night Powerball are in North Carolina and Texas.
Thanks to joshuacloak for the tip.
I hope he/she is exempt. America should do away with taxes on lottery winnings{NICE TRY/WISHFUL THINKING}. A lot of countries around the globe do not tax lottery winnings but I have a feeling that the good ol' U.S. of A, will be the last to go that route.
If America elected me president, there would be no IRS or tax on income of any kind. I would also legalize marijuana on federal level as well as prostitution. That is how you solve income inequality, prison overcrowding, and empowerment of women.
Bet the Fed's will now decide real quick about a decision on collecting their Federal Income tax!!!
What are the odds that the federal government will give up 25%+ to 39% of 1/3 of that ticket's value? LOLOL yeah right.
Very interesting!
Giving a further thought on this issue, in my opinion, the income was not technically generated from the local economy but from the Power Ball game which is based in the states.
Also,the people in Puerto Rico collect Federal benefits so don't see how this windfall would be " exempt income", from Federal income taxes.
Watch for the Feds to "pull a Jersey on em"
Pulling a Jersey on em = making a retroactive tax when they realize how much $ they missed out on.
That's how our 10.8 % state tax on lottery (the highest in the country) got started.
Or since Puerto Ricans are exempt from paying Federal taxes on local income they'll say
it's not local income since the $ came from all the states that are involved in the game.
One way or another Uncle Sam will get his cut !
I think this paragraph is interesting.....
This peculiarity has been a magnet for U.S. millionaires, who increasingly are finding ways to spend at least 183 days a year on the island in order to become a "bona fide resident" and benefit from Section 933 of the U.S. tax code, which exempts residents of Puerto Rico from paying U.S. income tax on their Puerto Rico-sourced income.
This is a smart move on the part of Puerto Rico!
i would have to say it would be hard to live there 183 days out the year all u have to do is run from hurricanes a month or two other then that ur good.
mrlottojackpot, did you mean to type: wouldn't be hard?
OldSchoolPa, why do you want to solve "empowerment of women" by sending more desperate women into a long-term job of prostitution and inevetable severe diseases and various abuse situations? Do you hate/disdain females (children and adults)?
I believe the few women that are truly empowered, should be left alone by other folks ... to enjoy that rare lifestyle.
You gotta be kidding me... They haven't sorted out the tax implications yet?
Hum, what other vital details didn't they care about?
Well I have a good idea what will happen but b4 I say it am surprised that powerball moved the game to Puerto Rico without laying down the rules on tax that is strange the tax rules should have moved to Puerto Rico b4 the game slips to even play now people are saying we not sure. Well when it comes to tax the bigger tax is considered b4 the smaller tax. Since the bigger tax is the federal tax I think the player has to pay that to continental America because this is a federal game and for state tax they may exempt him because federal tax was greater and deducted. Uncle Sam is never stupid when it comes to getting his tax money ,the federal tax is the first thing put on hold, as for what state tax does with him that is his problem now. And if anybody calls this a local income then it may be confiscated because the only local income with this much cash are drug lords lol .
The winner bought a ticket from the Puerto Rico Lottery. After coming forward and having th ticket validated they will be paid by the Puerto Rico Lottery from an account that's owned and maintained by the Puerto Rico Lottery. The other PB states will contribute their share of sales to the Puerto Rico Lottery, but won't pay a dime to the winner. The tax issues are exactly the same as they'd be if somebody earned a dividend from a Puerto Rican corporation that made money by selling its products to people in the states. he income was earned in Puerto Rico regardless of the fact that some of the money that funds the income came from other locations.
It's also well established that when somebody wins with a ticket that was issued by any of the states with lotteries the income is considered to originate from that state. That's why a states that sells a jackpot winning ticket gets to collect income tax even if the winner is a resident of a different state. That principle cuts both ways.
The only mystery is whether the winner is a resident of Puerto Rico or somebody who is subject to the taxes of some other jurisdiction.
Thank You Ky Floyd for the explanation. Makes sense.
too many people do not understand Territory laws/regulations verses , Federal regulations.
The Puerto R Lottery will get its cut from the winner.....so its sorta like Uncle Sam in a way.....
Looking forward to the winner coming forward..or do they have annonimity?
I don't know why the tax is in question, it is "black and white" so to speak, the lottery ticket was bought on Puerto Rico and if the person who owns the ticket is Puerto Rican then as the source is local, it is federal tax FREE, Why even ask anybody about it? It could not be clearer than it is.
After all the law says so.
Reminds me of: "Military Intelligence".
Since when, Does the military have intelligence? I thought that they were as dumb as they come.
Wow, first time ever in PR!
I wonder if the Virgin Islands have the same tax issue?
The USA has imposed a tariff and cabotage in P.R , we are exempt from federal income tax but we are paying it in other ways those benefits don't come out of the goodness of the USA heart.
The winner of the jackpot can remain anonymous if he wants to in P.R
I would make the MUSL report how much each lottery put towards the jackpot, divide it by 3, and tax them only on what Puerto Rico gave, since that was income earned from within the territory.
Not for nothing, but we should have the problem of worrying about the Feds collecting their income tax from the lucky winner in Puerto Rico.
Maybe that's why it's called the Rich Port.
The good news: USVI residents do not file returns with, or pay taxes to the IRS. More good news: there is no USVI state income tax.
Bad news: USVI residents file returns with, and pay taxes to, the Virgin Islands Bureau of Internal Revenue, using the same forms and rules as those of us who file with the IRS, and they pay the same rates.
Now that someone won the Powerball in Puerto Rico, I wouldn't be surprised that the federal government would pass a law that states that anyone winning a top prize in the Powerball game, must pay federal taxes on that win, even if it's retroactive.
I had a dream last night and in my dream I received a solution to solve this tax problem. The solution is that the Puerto Rico winner has to pay the higher federal tax of 30percent for people that win outside continental USA but because purto Rico has exemptions the federal government will refund Puerto Rico state their 20 percent so the federal government keeps 10 percent Puerto Rico keeps 20 percent the winner keeps 70 percent this will be a new rule called a split tax system hope IRS is reading my new ideal lol.
They wouldn't be able to make them pay taxes on income earned before the law would be passed. That's in the constitution (I believe the term is "Ex Post Facto").
Ex post facto applies only to criminal laws. If you do something on Monday and a law makes it illegal on Tuesday you haven't committed a crime and can't be prosecuted for what you did on Monday. Similarly, if you did something that was a misdemeanor on Monday and a law that takes effect on Tuesday makes it a felony, you can only be charged (and penalized) under the old law that makes your crime a misdemeanor.
Several years back the state of NJ passed a law somewhere around summer that retroactively made NJ lottery prizes subject to NJ income tax as of January 1st. Somebody who won before the law was passed sued, but their legal argument is that by buying their ticket at a time when there was no state income tax on the winnings they had a contract with NJ, and the law violated the terms of the contract. If ex post facto applied they would have used that argument, since it's far more clear cut.
The argument in the NJ case wouldn't apply in the case of a change in federal tax law, since there's buying a state lottery ticket, with the attendant promises from the state, clearly doesn't create any contractual obligations for the federal government. Curiously, the info I've seen about PR is that it's PR's choice to be exempt, rather than the federal government choosing not to tax PR residents. In that case, if PR decided to change the law the winner would probably have the same argument as the NJ winner: they bought the ticket based on the implicit promise that any winnings would be taxed as they were at the time the contract was made, which is when the ticket was purchased. Since in the case of the PR winner any change would affect federal taxes instead of state taxes there's perhaps a better argument that the purchase contract doesn't include a promise that federal income tax obligations won't change, even if it is up to PR to decide on any such changes.
my pie, you're right.
I've love taking a drive to see mi familia sometimes en pennsylvania,because when we win,no tax taken out in PA.,
NJ one day feasibly might do away with that...Time will tell...
However,i think it is so nice the P.R.familia whoever he or she is won,so "quick."
Isn't it true P.R.just won such right to have it played there?That is nice.
adios