How are Lottery winnings taxed?Previous TopicNext Topic

If a person hits a big jackpot, such as  Mega Millions, Powerball or even a large payout scratch off, how are taxes paid on this money? I have heard you pay approx. 50% immediately, but are you taxed on the remaining money yearly? Someone said it is considered earned income? Anybody know or been lucky enough to have this problem?

If you win over $600, you will have to claim it giving your name and social security number and the state will send you a W-G form to filed with your taxes like regular income.

But what happens when you win the Mega or Powerball, or even a big ticket scratch off? I know tax money is paid at that time, but are you taxed on the balance of the money year after year. Someone was saying that it is considered earned income. I hope I have this problem soon to worry about .

FIFTY PERCENT?? holy lord no.  As an example, Florida State lottery takes 25% immediately, no state tax.  It doesn't matter if you take the annuity or lump sum it's just 25%.  Then when you do your taxes of course that $$ is treated like earned income but you have paid 25%...depending on what your personal situation is you may or may not owe more. 

To put it in perspective, when you have a job you pay federal taxes before you ever recieve your check but then you also may owe additional taxes April 15.  You may even get a refund, but i'm sure with that high of a tax bracket it's doubtful.

Your taxed based on the money you earned, and not by how much money you have.

yup that is why i play tenn pick 4 @.50 a pop,i can play it x's $10.00 and win 4000.00 a draws taxfree

you pay tax on the year you get it. so win and pay tax,  then you have the money, so no more tax on the money you have, but.. you pay tax on the money that money earns.

if you take annuities, you will pay tax on the money ea year you get it, and tyhe way gov is going over there it will prob be a higher tax rate very soon.  but annuity is only like 1/20th of the amount so you pay what ever tax on 1/20th of the money ea year.ie only the money you get that year.

Louisiana withholds 30% from the winnings, 25% for the IRS, and 5% for the Louisiana Department of Revenue for our state income tax.

They will give you a W2-G, which is similar to a W-2 people get from their employers, and that information is put on the tax forms under income and wittholdings.

I've done some research on this so I can be ready WHEN it happens.

For the initial deduction use the pages from USA Mega:

http://usamega.com/mega-millions-jackpot.asp

http://usamega.com/powerball-jackpot.asp

For me In Wis it shows that I will have 67.25% left after the initial deduction.

But from what I gather in a small study max tax would leave me with 57.25% left.

But you can get the max tax reduced by getting creative with deductions...

(Just don't try and get TOO creative!)

MarkP

I think people misunderstood your question.

He was asking, if the big jackpots, for example Mega, get taxed right away (about 50% in NYC), will they tax it AGAIN after putting the sum into your banking account (if you've picked the lump, gotta be crazy to take the annuity option). 

To answer the question, AFAIK, I don't think they tax it again after they've taken out the taxes out of the initial amount!  You didn't earn it, you've won it.

No, the OP did say yearly.

The initial payment to the IRS is about 25% but in reality your in the highest tax bracket which is about 50%.  Lets say you win in July 2010 and the money is paid to you in August 2010 with the 25% initial tax payment going to the IRS.  You will still owe the other 25% on April 15, 2011.

Correct me if I am wrong, but from what I have been able to see regarding taxes on Lottery winnings are as follows:

IRS will take an INITIAL 25% from your winnings for Federal.  State and local taxes if applicable.

Come April 15 of the following year, you will be responsible for paying the remaining taxes that are due to Federal.  At the present time, you are looking at a total Federal tax responsibility of 39.6%.  So, if my figures are correct, on April 15 you will have to pay an additional 14.6% on the amount that you won.

If you took the Lump Sum, that will be the last "Tax payment" on your winnings.  Any taxes after that will be based on your "interest" from monies that you have invested.

For the Annuity, you will be paying the full 39.6% each year of the annuity when you receive your yearly payment.  The info about annuity is vague to me as I plan on the Lump Sum only are really haven't researched the annuity that indepth.

You're wrong on two points.
1. As of now the highest tax bracket is still 35%.
2. As of now only taxable income over about 372k is taxed at the highest rate. The  income that's taxed at a lower rate reduces your taxes by roughly 30k annually compared to paying 35% on the full amount. Considering a cash value of 50% and a 26 year annuity that would mean a tax savings of 400 thousand dollars compared to taking the lump sum.

KY Floyd,

I stand corrected.  I just went back to recheck my source and found that the stated tax rate of 39.6% was current rate but in acutality it is the proposed rate for 2011.  This info is coming right off the IRS site for your information.  Right figure, wrong year.  Sorry for the confusion.