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State Tax

Topic closed. 28 replies. Last post 10 years ago by four4me.

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Zeta Reticuli Star System
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Posted: October 3, 2006, 12:53 am - IP Logged


Heres' why I brought it up, there was a story some 25 years ago or so about an American couple that won the Canadian lottery. 

Canada paide lump sum, tax free. Uncle Sugar said Where's mone? So they moved to Canada.

Then, as the story went, they were told if they ever returned to the U.S. they owed the taxes.  

Same principle as it's against the law to buy an Irish Sweepstakes ticket, but you owe taxes if you hit. How that works I'm not sure.  

(How they going to know you hit?) 

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    California
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    Posted: October 3, 2006, 11:01 am - IP Logged

    NY Floyd and Preppy…thanks for your detailed answers.  I guess the real question comes down to when is the money from a winning lottery ticket jackpot considered as income?  KY Floyd you feel that happens when the draw occurs.  For discussions sake, one could think that you are entitled to the money once the lottery verifies/validates your claim.

    Another train of thought is you would not count the winnings as income until the money is in your possession.  This would be similar as to how income is treated at the end of a calendar year.  Specifically a paycheck cut in early January for wages earned in late December counts as income in January, when the money is paid/received.

    While all of our opinions seem to make sense, most likely there are laws/tax codes that define when money earned/won becomes income.  More then anything else this points towards another reason why it is imperative to seek out the help of professionals should one ever win a jackpot.

    How frustrating would it be to be taxed in two different states?  Although for a Powerball/Mega Millions Jackpot I would take on that burden in a minute.  It might even make it easier to stay under the radar at home from a publicity standpoint and be worth the extra expense!!

      Preppy's avatar - scene sunoverlake.jpg
      Los Angeles County, CA
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      Posted: October 3, 2006, 12:05 pm - IP Logged


      Let's make it a wee bit more interesting.

      Let's say an American hits the Canadian lottery. Now what? 

      As far as I know, the U.S. is the only country that taxes gambling winnings.  

      I agree with the posts from a few months ago that US citizens are taxed on world wide income. If you are a US citizen and you win a tax free Canadian, a tax free UK, a tax free Irish or any other tax free lottery outside the US, your tax situation would most likely look like the Massachusetts and California situation mentioned earlier. You would have to pay state income taxes in addition to federal income taxes.  If there is a gambling winnings tax treaty between/among the foreign country, the US, and the state in question, residents of the US may get taxed at a reduced rate.

      The US is not the only country that taxes the lottery.  There are a lot of countries that tax lottery winnings, but I think the US is the only country that has an annuity and taxes.

      I am aware of the tax situation in the following countries:

      Some Lotteries that don't tax:

      Belgium - Loterie Nationale and Euro millions
      Canada - I assume all games are tax free
      Denmark - all other games
      Finland - all other games
      Germany - all games
      Ireland - all games and Euro millions
      Norway - all games
      United Kingdom - all games and Euro millions

      Some Lotteries that do tax:
      Israel - Lotto (a formula, 25% is the base rate)
      Italy - Lotto (6%), Superenalotto (NA)
      Luxembourg - Euro millions (15%)
      Netherlands - Dutch Lotto (25%) and the State Lottery (0%)
      Portugal - Euro millions (based on game type: 25% or 35%)

      Some Lotteries that do tax but have special conditions:
      Australia - sales tax at the time of purchase
      France - National Lottery and Euro millions
      Winnings are tax free first year, but winnings are subject to wealth tax the following year. I also believe there is a sales tax (27%) on French lottery tickets, very difficult to confirm the sales tax aspect.

      Spain - El Gordo and Euro millions
      (The prizes can't be transferred outside Spanish territory. However, if the money is taken out of Spain it will be subject to taxation.)

      Switzerland - Swiss lotto and Euro millions
      (Winnings are taxed with a 35% federal withholding tax, which is returned to the taxpayer a year later. Winnings must also be declared as income. Each of the 26 Cantons ("states") has its own tax policy.)

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        NY
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        Posted: October 4, 2006, 3:07 pm - IP Logged

        NY Floyd and Preppy…thanks for your detailed answers.  I guess the real question comes down to when is the money from a winning lottery ticket jackpot considered as income?  KY Floyd you feel that happens when the draw occurs.  For discussions sake, one could think that you are entitled to the money once the lottery verifies/validates your claim.

        Another train of thought is you would not count the winnings as income until the money is in your possession.  This would be similar as to how income is treated at the end of a calendar year.  Specifically a paycheck cut in early January for wages earned in late December counts as income in January, when the money is paid/received.

        While all of our opinions seem to make sense, most likely there are laws/tax codes that define when money earned/won becomes income.  More then anything else this points towards another reason why it is imperative to seek out the help of professionals should one ever win a jackpot.

        How frustrating would it be to be taxed in two different states?  Although for a Powerball/Mega Millions Jackpot I would take on that burden in a minute.  It might even make it easier to stay under the radar at home from a publicity standpoint and be worth the extra expense!!


        With income earned from a job, your employer generally has a specific policy about when you get paid. A few people get paid at the end of the week for that week's earnings, but I think that the majority of people get paid sometime the following week, or even two weeks later. That would mean that if most of us earned $1000 during the last week of December we'd collect that $1000 sometime in January. When your W-2 or 1099 form shows up in February it will show what the company *paid* you during the previous year, not what you *earned* (hey, Todd, where's my button for bold?). As a practical matter that means that you'll pay taxes on the $1000 from the last week of December, but not until the following year.  For the most part, the IRS and the states are reasonably happy with that because they still get the money, and for each taxpayer it's usually a modest amount of money. As a practical matter it would be an enormous amount of work for the IRS or state tax departments to investigate what was earned in one year but paid in the next.

        Now let's imagine two of the uncommon situations. The first is when somebody moves to a different state, so that they earn money as a resident of one state but get paid while a resident of another state. The second is when the money earned at the end of the year but paid in the following year is a substantial amount of money. In the case of a lottery winner who moves out of state both situations will apply.  I don't know the specifics of laws in other states, but if a  NY resident moves out of state the money earned before moving but paid after moving is NY source income and subject to NY income tax, period. As a practical matter, I'd imagine that most people who move at the very end of the year simply pay taxes based on the amount listed on their W-2 or 1099, and the states don't worry about it. The taxes lost when somebody moves from NY to NJ will be mostly offset by collecting taxes from somebody who moves from NJ to NY, so why go to all the trouble of tracking each taxpayer? For a taxpayer with unusually high income, though, the state will be happy to jump through some hoops to get taxes to which they're entitled.

        If you win a lottery toward the end of the year but the state won't cut the check until after January 1st, then the taxes will most likely be due April 15th of the following year. When you get the money is relevant to that extent. If you move to a different state, though, your tax obligations to your former residence won't change.  You may be able to defer the taxes until the year in which the check was written,  but you were a resident when you won, and you will owe taxes to that state.

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          California
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          Posted: October 4, 2006, 3:26 pm - IP Logged

          I guess the key question remains when does the IRS consider the income as yours?  For a lottery jackpot is it the day of the drawing, the day the lottery says you are a winner or when you get your check?  And if you should move during this timeframe, I would imagine whenever the IRS says the income is yours, where ever you are living, that is where your state tax obligation would lie.

            st.germain's avatar - Tarlor
            chicago ill.
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            Posted: October 4, 2006, 7:47 pm - IP Logged

            Niether!  You can wait a week or a month but it is when you come in and actually file and fill a claim form for your money. That is the time the  IRS considers the "win" as income because at that time the process begins where papers are shuffled and gets to the disbursement dept so that they can cut a check. Also, this is the time they take out their federal taxes and such. 

            So, it is at the presice moment you walk in and file that claim.    Unhappy

              st.germain's avatar - Tarlor
              chicago ill.
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              Posted: October 4, 2006, 7:49 pm - IP Logged

              Just don't show up after the expiration date.....don't be late!

                justxploring's avatar - villiarna
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                Posted: October 4, 2006, 7:55 pm - IP Logged

                Niether!  You can wait a week or a month but it is when you come in and actually file and fill a claim form for your money. That is the time the  IRS considers the "win" as income because at that time the process begins where papers are shuffled and gets to the disbursement dept so that they can cut a check. Also, this is the time they take out their federal taxes and such. 

                So, it is at the presice moment you walk in and file that claim.    Unhappy

                Agree except it might be sooner than that. Although it was about the IRS, not State tax, until DvDiva posted about this a few months ago I did not realize that you cannot wait until Jan or Feb of the next calendar year to claim your ticket just to avoid taxes.  You have a total of 60 days, so unless you win after Nov 3rd (figuring 31 days in Dec and Jan 1 is a holiday)  you still need to pay taxes for the year you win, not collect. I imagine a state is the same way.  I'm no expert since I've only lived in states without income tax for a very long time. After moving out of Taxachusetts in 1986, I lived in NH (which had no sales tax either) and Florida has no state income tax.

                I want to add that I guess this means I disagree with KY Floyd then when he compared getting a paycheck with the lottery payment.  I know that taxes are based on when you actually get your paycheck, not when you worked because most people get a W-2 form if we are talking about an employee. However, when I read the IRS rules on lottery prizes after reading the post by another member I mentioned, I found out something new...that it's not when you get your money from a lottery prize that matters, it's when you win it.

                  st.germain's avatar - Tarlor
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                  Posted: October 4, 2006, 8:12 pm - IP Logged

                  In Illinois...as soon as you file your claim form is the presice time that the feds "take" their share of taxes...The state itself gives you a w4 / 1099 form ( i forgot wjich)((((which))))  at the time  of filing for this years taxes...so  NO..not in illinois you can't wait till next year "THEY" want it now...this year...just as soon as you can file your State income taxes.

                                                                                        Unhappy

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                    Delaware
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                    Posted: October 4, 2006, 11:02 pm - IP Logged

                    If your state is New York, you can rest assured they will tax you to death on your winnings even if you move prior to claiming. New York makes up any excuse in the book to tax someone.

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                      California
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                      Posted: October 4, 2006, 11:59 pm - IP Logged

                      St. Germain...so if I understand your thinking, the money becomes income when the claim is filed. 

                      So to take this a step further, I bought the winning Mega Millions ticket in California for the June 1st drawing while visiting as a resident of Massachusetts.  I take all my wordly possesions and physically move to California as of July 1st.  I am now considered as resident of California as I not here on a tenative or transitory basis.  I file a claim for my winnings on July15th.  California does not tax in state lottery winnings.

                      Would the the state of Massachusetts have any right to collect income tax from me from the Mega Millions Jackpot?

                        Preppy's avatar - scene sunoverlake.jpg
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                        Posted: October 5, 2006, 12:27 am - IP Logged

                        I guess the key question remains when does the IRS consider the income as yours?  For a lottery jackpot is it the day of the drawing, the day the lottery says you are a winner or when you get your check?  And if you should move during this timeframe, I would imagine whenever the IRS says the income is yours, where ever you are living, that is where your state tax obligation would lie.

                        It depends on which payment option you pick. If you select the lump sum option, you would most likely pay taxes in the year you gave your social security number and the lottery verified you were holding a valid ticket and the lottery deducted any delinquent debt owed to the state.  Worst case scenario, you would have to file for an extension and/or file an Estimated Tax for Individuals.

                        If you pick the annuity option, for your first payment you would most likely pay taxes in the year you gave your social security number and the lottery verified you were holding a valid ticket.  The next 25 or 29 annuity payments are paid on your anniversary win date, the day of the drawing. If you won a jackpot December 2006, but claimed your prize in 2007, you would receive two checks in 2007, your first and second annuity payment. You have to make the necessary provisions for receiving two annuity payments in the same year.

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                          NY
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                          Posted: October 5, 2006, 1:42 am - IP Logged

                          St. Germain...so if I understand your thinking, the money becomes income when the claim is filed. 

                          So to take this a step further, I bought the winning Mega Millions ticket in California for the June 1st drawing while visiting as a resident of Massachusetts.  I take all my wordly possesions and physically move to California as of July 1st.  I am now considered as resident of California as I not here on a tenative or transitory basis.  I file a claim for my winnings on July15th.  California does not tax in state lottery winnings.

                          Would the the state of Massachusetts have any right to collect income tax from me from the Mega Millions Jackpot?

                          Ever notice that people believe what they want to hear?  If you win MM ticket this Friday and wait until March to claim your winnings, the IRs might be perfectly happy to collect the taxes in the following year. They're going to get their share either way, so waiting a year may not bother them. That doesn't mean they agree that you didn't earn the income this year.

                          The state may also be willing to wait another year, but whether it's this year or next, the state will expect you to pay taxes on the winnings.  If you buy a ticket and move before the drawing you'll have a good argument that you didn't earn the money until after moving, but if they stand to collect millions, don't be surprised if the state argues that the money was earned by buying the ticket, and not by the drawing. You definitely don't earn the money by claiming it.

                          The specific rules and wording will vary from state to state, but here's the relevant part of the NY rules:

                          Your accrued income as an individual
                          moving out of New York State is income
                          you earned in your New York State resident
                          period but received after you became
                          a nonresident of New York State.  Income
                          accrues to you as a taxpayer when the
                          amount becomes fixed and determinable
                          and you have an unrestricted right to receive
                          it.
                           
                          Notice the part that says "fixed and determinable"? The amount of your winnings are fixed by the lottery rules, and will be determinable as soon as they know how many tickets were sold. They may not look at the records for a few days, but the computer record means they know how many tickets were sold as soon as the last ticket is sold.  Once the drawing makes your ticket a winner you have a right to receive it. Those who don't mind paying interest and penalties can plan to argue about the exact meaning of "unrestricted right", but a validation process and two week waiting period aren't restrictions. Sitting on the ticket for a month or two isn't any more of a restriction than waiting a month to cash your paycheck.
                            four4me's avatar - gate1
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                            Posted: October 5, 2006, 11:31 am - IP Logged

                            St. Germain...so if I understand your thinking, the money becomes income when the claim is filed. 

                            So to take this a step further, I bought the winning Mega Millions ticket in California for the June 1st drawing while visiting as a resident of Massachusetts.  I take all my wordly possesions and physically move to California as of July 1st.  I am now considered as resident of California as I not here on a tenative or transitory basis.  I file a claim for my winnings on July15th.  California does not tax in state lottery winnings.

                            Would the the state of Massachusetts have any right to collect income tax from me from the Mega Millions Jackpot?

                            go to this web page and try your question here

                            http://www.justanswer.com/tax-question.asp?r=gatax