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I have a question about payments.

Topic closed. 7 replies. Last post 10 years ago by dvdiva.

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United States
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July 13, 2006
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Posted: September 14, 2006, 8:16 am - IP Logged

say if you won the state lottery or a multi-state lottery and you took payments, do they already take the federal tax out of every check you get, or do you have to pay the tax on every check you get for every year?

    weshar75's avatar - Lottery-042.jpg
    Mcminnville, Oregon
    United States
    Member #3013
    December 13, 2003
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    Posted: September 14, 2006, 10:50 am - IP Logged

    say if you won the state lottery or a multi-state lottery and you took payments, do they already take the federal tax out of every check you get, or do you have to pay the tax on every check you get for every year?

    The lottery takes a percentage out of your annual payments but what you finally pay for the year depends on how you use the money throughout the tax season.  Keep in mind that the percentage that the lottery takes is not what you will finally owe the federal and state government.  Example is the state lottery hands you your payment minus 25% federal taxes and no state taxes are taken out.  Then at tax time you have to pay the federal taxes another additional 10% and then say a 5% state tax on your prize every year you get an annual payment.-weshar75


      United States
      Member #16612
      June 2, 2005
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      Posted: September 14, 2006, 11:00 am - IP Logged

      That's why if I win any PB or MM ticket in a state that has sales tax added, I should take cash option. Since I'm living in CA, there's a 50/50 chance I'll take payments because there's no sales tax deducted from winnings.

        SirMetro's avatar - center
        East of Atlanta
        United States
        Member #6191
        August 11, 2004
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        Posted: September 14, 2006, 1:43 pm - IP Logged

        Below is what the State of Georgia does http://www.galottery.com/gen/aboutUs/faq.jsp#14


        Q.Are State & Federal Taxes withheld on Georgia Lottery Prizes?

        A.Yes. All Georgia Lottery prizes are subject to applicable federal and state withholdings, and state and federal income taxes. The GLC reports to the IRS and Georgia Department of Revenue the names of winners of prizes of $600 and above. Georgia state income tax of 6% and federal income tax of 25% are withheld from prizes of more than $5,000 at the time the prize is claimed. Additionally, the GLC is required to check for and deduct any outstanding child support payments for prizes of $2,500 and above and student loans and state taxes for prizes of $5,000 and above, net of wager or ticket cost.


        So at least here in GA, yes, they do take "SOME" of the tax proceeds on the larger payouts. But like Weshar75 noted, it is NOT all you will owe. Odds are favorable that you will have to cough up at least another 12% of the gross win by the end of the year. And keep in mind, IRS gets a little ticked off when the extra you owe goes above a certain amount and you could very well get hit for additional penalties for failure to pay the estimated tax during the year. This is why having either a trustworthy tax attorney or Tax Accountant is critical for the larger wins.

        Also keep in mind...if a cash option is available, I strongly suggest you take it. All it takes is for the State to have a bad year or a crooked politician to make the annuity just vanish like it didn't exist. Also, consider this, a real life comparision has shown that an individual investor who understand how to properly manage money can easily create wealth far greater then any annuitized plan that exist. So if you do win big, take time to learn how to manage it so that you don't become another statistic of a person who won big and lost it all.

        Good Luck,

        Sir Metro


          United States
          Member #379
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          Posted: September 15, 2006, 1:17 pm - IP Logged

          I agree: if there's a cash option, you should take it. But, if there's no cash option, like GA Lose for Life, you should BOYCOTT it.

            dvdiva's avatar - 8ball

            United States
            Member #2338
            September 17, 2003
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            Posted: September 15, 2006, 11:06 pm - IP Logged

            You will owe currently 35% federal plus any state income tax each and every year. As the tax rate goes up so does the amount you owe. If you choose cash you pay tax once and if you get tax-free muni bonds then every check is free from federal income tax.

              TheGameGrl's avatar - character catafly.jpg
              A long and winding road
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              Member #17084
              June 10, 2005
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              Posted: September 15, 2006, 11:23 pm - IP Logged

              You will owe currently 35% federal plus any state income tax each and every year. As the tax rate goes up so does the amount you owe. If you choose cash you pay tax once and if you get tax-free muni bonds then every check is free from federal income tax.

              dvdiva- correct on the municpal bonds *UNTIL* They mature and they  are cashed  in. They are under tax shelter during the time frame (usually 5year or ten year bond limits). Heck a person can buy federal blue bonds and be sheltered til they mature after 20 years. But why tie the cash funds up simply to avoid the inevitable. The government gets its tax revenue at some point.

              The goal is to lessen the % given in and invest it in such a way that enhances positive revenue.

              35% is the cap for federal. but ymmv based on some of the deductables.

              ~~Is it true, Is it kind,Is it necessary. ~~~

              pa:888,4445,6132,4444,8008

                dvdiva's avatar - 8ball

                United States
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                September 17, 2003
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                Posted: September 15, 2006, 11:37 pm - IP Logged

                Tax-free muni bonds are exempt from federal income tax. That's why they are popular. The interest rates are lower than other bonds however.

                www.morganstanleyindividual.com/markets/bondcenter/school/faq/#1

                www.bondsonline.com/freemuni.html

                www.irs.gov/taxexemptbond/topic/index.html ( under development)

                en.wikipedia.org/wiki/Municipal_bond

                That should answer your questions on them.