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KY Floyd

NY
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October 16, 2005
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Mar 7, 2007, 1:25 am

Chuckie,
The reason the part you quoted from the IRS says "withholding" in big bold letters is because it's about withholding, not what your tax will be. What you actually owe depends on your total income, your total deductions and your filing status. If you win $5000 and that's all you make for the year you'll get a refund when you file a return. If your taxable income is much higher you may be taxed at higher rates on some of your income.
If you win even a modest jackpot you will find yourself in the highest tax bracket unless you have deductions that are almost equal to the jackpot, and the highest bracket is 35%. If you're married and file jointly every dollar of taxable income over $336,500 will be taxed at that rate. The lower rates on the first $336,500 will save you about $25 grand compared to the 35% rate, but if you find yourself with 10 million or more in taxable income your total federal tax bill will be very close to an even 35%.
With that sort of income normal deductions won't do much to save you money. Medical deductions that help for modest incomes will be meaningless for a huge income, and saving a million on taxes by spending $3 million on medical bills isn't something anyone does voluntarily. Of course if you win $200 million in the lottery and give most of it to charity your tax bill will go way down, but it will still be 35% of your taxable income, and the donation will reduce your net by more than your tax savings. Your net is what most people are really interested in when they want to know how much the taxes will be. You can potentially increase your net by using tax shelters to reduce your taxes without reducing your real income but the IRS doesn't make the rules to put money in your pocket. Tax shelters may be good at reducing your taxes over time bu tthey aren't as good at reucing taxes for people who have a sudden windfall. Plenty of people have lost millions instead of saved them. That's yet another in the long list of reasons that anyone who winds the lottery will need sound advice from professionals.
four4me

MD
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Mar 7, 2007, 1:54 am

I think that many people are adding there state tax to the 25% fed tax in which case many people might come up to around 35% total tax due.

For prize payments over $5,000 taxes will be withheld as follows:
25.0% Federal Tax
7.75% State tax (Maryland residents)
Total tax due 32.75%

justxploring

Wandering Aimlessly
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November 5, 2005
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Mar 7, 2007, 2:20 am

Quote: Originally posted by CountingMan on Mar 6, 2007

Ladies, Gentlemen:

Lottery winnings are considered gambling winnings. They are not earnings, in the sense that you would be paying FICA, Medicare, etc. They are not subject to these taxes, nor self employment taxes. They are simply income that is not "earned" (you didn't work or put time in on the job) to obtain them.

I would agree that with previous synopsis concerning the withholding of 25% at the initial winning handover, with an additional 10% being due later in the year. At this income level ($10MM), I can gurantee that unless alternate legal entities come into play (trusts, etc), that you will be paying no less than 35% and that you will not have any real deductions (income too high to qualify) to decrease your tax liability.

_________________________________________________

Nothing beats a try, but a failure.

The tax tables are very clear on the IRS web site. Example: For a single person filing

If taxable income is over--	But not over--	The tax is:
$0	$7,825	10% of the amount over $0
$7,825	$31,850	$782.50 plus 15% of the amount over 7,825
$31,850	$77,100	$4,386.25 plus 25% of the amount over 31,850
$77,100	$160,850	$15,698.75 plus 28% of the amount over 77,100
$160,850	$349,700	$39,148.75 plus 33% of the amount over 160,850
$349,700	no limit	$101,469.25 plus 35% of the amount over 349,700

As I wrote before, a good tax attorney can help reduce taxes, but I agree with CountingMan.

Badger

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Mar 7, 2007, 7:46 am

Quote: Originally posted by CA LotteryGuy on Mar 6, 2007
Badger not sure when you called the lottery (as there was a change in withholding amount a few years back) but here is the information from the Wisconsin Lottery Web Site:
Do I have to pay taxes on my winnings? All lottery winnings are taxable. The Lottery automatically deducts 25 percent federal for any winnings $5,001 or over, and 6.75 percent state income tax for any winnings over $1,999.
Not sure about the FICA/Medicare issue. Doesn't sound right, maybe otherswill give us their understanding of this issue. People use the 35% because that is the maximum current Federal income tax rate.
I like your idea on the P3 ticket, however I just play the big jackpot games!!

It's been a couple years since I talked to the lottery office, yeah. Not that it mattered to me, since I haven't had to worry about more than a $500 ticket in al that time. <g>

============

How can you tell if a politician is lying?

Answer: His lips are moving.
CA LotteryGuy

California
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October 1, 2006
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Mar 7, 2007, 11:11 am

Quote: Originally posted by four4me on Mar 7, 2007
I think that many people are adding there state tax to the 25% fed tax in which case many people might come up to around 35% total tax due.

For prize payments over $5,000 taxes will be withheld as follows:
25.0% Federal Tax
7.75% State tax (Maryland residents)
Total tax due 32.75%

four4me....your post was accurate except for the word due. When one says total tax due I take it that would be the total tax liabilty when everythinng is all said and done.
What you are talking about here is tax withheld. The tax withheld for a MD resident would be as you stated. The tax is not due as you don't even see it, it is taken out before you get your cut of the money. Your total tax due (meaning what you will owe in total taxes when it is time to settle your tax bill with the IRS) could increase as much as 10% of the gross winnings. The as much as comes from what other income, deductions and witholding you report. KYFloyd's post does a good job of reviewing this situation.
Change the word due to witheld and you are spot on correct. The lotteries do a good job of expalining taxes witheld, they do not explain your total tax liability as there are too many variables.

Rick G

FEMA Region V Camp #21
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July 27, 2002
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Mar 7, 2007, 4:02 pm

Quote: Originally posted by justxploring on Mar 7, 2007

The tax tables are very clear on the IRS web site. Example: For a single person filing

If taxable income is over--	But not over--	The tax is:
$0	$7,825	10% of the amount over $0
$7,825	$31,850	$782.50 plus 15% of the amount over 7,825
$31,850	$77,100	$4,386.25 plus 25% of the amount over 31,850
$77,100	$160,850	$15,698.75 plus 28% of the amount over 77,100
$160,850	$349,700	$39,148.75 plus 33% of the amount over 160,850
$349,700	no limit	$101,469.25 plus 35% of the amount over 349,700

As I wrote before, a good tax attorney can help reduce taxes, but I agree with CountingMan.

This is right on target with the 2006 tax tables.

I just skimmed this thread so I might have missed some points already made. Forgive me if I repeat something. Someone mentioned FICA, medicare etc. These do not apply to gambling winnings. Also as Todd said, we're talking about federal tax liability and not individual state taxes.

That said, on page 79 of the 2006 1040 tax booklet Section A, filing as Single, the tax rate is 35% minus $20,139 if your taxable income is more than $336,550. Filing status slightly changes the amount deducted from the tax burden but not the 35% tax rate.

Taxable income will vary depending on deductions.

With a multimillion dollar lottery win such as yesterday's MM, the tax rate will be very close to 35%. The $20,139 subtraction will only lower it by a fraction of 1 percent. I'm referring to the tax rates on your taxable income, not what your taxable income is after imaginative tax deductions.

Posted 4/6: IL Pick 3 midday and evening until they hit: 555, 347 (str8).

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