Home to the latest information and tips about increasing your winning odds in lotteries!
Posted: Monday, Jan 31,2022 | Time: 07:43 am | Edited by: The Lottery Lab Staff
There's no doubt winning a lottery or being showered with a sudden windfall is as exciting as a 4-year old getting their favorite Popsicle! But that 4-year old's excitement might last longer than yours! Because as soon as you've won that huge sum of money and just started imagining your problem-free life full of luxuries, Uncle Sam steps in to take your Popsicle! You quickly learn that you have not bagged the Advertised Lottery Jackpot! Therefore, you should not be too quick in spending the prize from your grand win.
Lottery winnings are treated as ordinary taxable income by both Federal and State tax authorities. Winnings are taxed at the same rate as wages or salaries!. The total prize amount must be reported on the winner’s tax return for that particular year. Before you can even touch your newfound wealth, the IRS automatically deducts 24% of the winnings and your state can take as much as an additional 13% for the state taxes. There are few states that do not levy an individual income tax on lottery prizes including Florida, New Hampshire, Tennessee, Texas, South Dakota, Washington, and Wyoming. While there are few states like California and Delaware that do not levy any lottery taxes.
To understand these complicated lottery tax calculations, you need to get your hands on a lottery tax calculator and hire a financial advisor to get help over tax and investment strategies. But before that, let's familiarize you with some basic tax information on lottery prizes so that you make the most of your good fortune and handle the wealth successfully.
Ok, so the IRS considers your lottery winnings as ordinary taxable income. There's no special tax bracket for such types of money received. After deducting the cost of your ticket, the amount left is owed to Federal Income Taxes. The exact percentage levied for the federal income tax depends on your total amount of winnings and other sources of income. This is why the IRS withholds 24%. For most winners, they will get a refund because their prize doesn't put them into a tax bracket higher than 24%. But in the case of record-setting jackpot winners, they may end up still owing additional Federal taxes.
Let’s say you won a million dollars and chose to receive your lottery winnings in the form of 20 annuity payments. That would mean you would receive $50,000 in 2022. Under this situation, you would report $50,000 as income on your 2022 tax return. But, if you chose to take the lump-sum payout option, you would have to report the entire $1M amount received in 2022. And for this, you definitely need a lottery tax calculator.
It is important to note that before you receive a single penny, the IRS automatically takes away 24 percent of your winnings as tax money. And you're expected to pay the rest of your tax bill on that money when you file your return.
When it comes to taxes, lottery winnings are taxed according to the state or federal tax brackets. This is why you don't have to pay the same amount of tax on the entire prize money. The tax brackets are progressive, this means that different portions of your winnings are taxed at different rates. Depending on the amount of winnings, the lottery tax could be as high as 37 percent! State and local tax rates vary by location. There are some states that do not impose an income tax as mentioned above, while there are others that withhold over 15 percent. Also, there are some states that withhold taxes for non-residents, meaning even if you don't reside in that state, you may still have to pay taxes to that state.
The majority of states do not withhold taxes for lottery winners who don’t reside there. In fact, out of the 43 states that participate in multistate lotteries, only two of them withhold taxes from non-residents. Arizona and Maryland are the only states who impose taxes on lottery winnings of the people who live out of state.
Once you have your winning ticket in hand, the first question that should strike your mind is, how much money do you get to keep and how much will the government take? And to answer this most appropriately, The Lottery Lab Tax Calculator gives you an estimate of the final cash amount after the deductions that you will receive.
All you have to do is enter the winning amount and the state in which you've won!
While this provides a quick orientation to taxes, it is always best to calculate all your liabilities and taxes with the help of tax professionals before splurging that giant check. It wouldn’t be much fun to get hit by heavy taxes and debt bills that could have been avoided. Use effective and efficient tools like tax calculators and others to start planning and managing your lottery winnings wisely and responsibly. Because
"You must gain control over your money or the lack of it will forever control you!"
– Dave Ramsey
Disclaimer: The Lottery Lab provides this tax information for general familiarization purposes only. The Lottery Lab makes no guarantee that any information is up to date. The changing nature of tax law and the unique circumstances of individuals make it necessary that winners seek the advice of trusted professional advisors.