Will the Puerto Rico Powerball winner pay Federal tax? Nobody knows

Feb 13, 2015, 7:31 am (29 comments)

Powerball

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.

Fox News Latino

Comments

mypiemaster's avatarmypiemaster

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.

OldSchoolPa's avatarOldSchoolPa

Quote: Originally posted by mypiemaster on Feb 13, 2015

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.

Gleno's avatarGleno

Bet the Fed's will now decide real quick about a decision on collecting their Federal Income tax!!!

Dance

maximumfun's avatarmaximumfun

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.

dpoly1's avatardpoly1

Very interesting! Group Hug

Gleno's avatarGleno

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.

Group Hug

haymaker's avatarhaymaker

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 !

kreative1's avatarkreative1

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.

dpoly1's avatardpoly1

Quote: Originally posted by kreative1 on Feb 13, 2015

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!

mrlottojackpot

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.

HaveABall's avatarHaveABall

Quote: Originally posted by mrlottojackpot on Feb 13, 2015

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?

HaveABall's avatarHaveABall

Quote: Originally posted by OldSchoolPa on Feb 13, 2015

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.

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.

Romancandle's avatarRomancandle

You gotta be kidding me... They haven't sorted out the tax implications yet?

HaveABall's avatarHaveABall

Quote: Originally posted by Romancandle on Feb 13, 2015

You gotta be kidding me... They haven't sorted out the tax implications yet?

I Agree!, Romancandle, the Puerto Rico Lottery Headquarters didn't care about taxes before joining the Powerball lottery game!  [Oh, well, ho hum ... you have to possess a ticket to win.]  That probably instilles a lot of faith from their gambling citizens and visitors, doesn't it?

Hum, what other vital details didn't they care about?

Rant

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