Your Lucky Day
All lottery winnings are subject to Federal and (sometimes) state income taxes, and sizeable jackpots are taxed at the maximum federal rate of 39.6%. That means if you were to take your winnings all at once instead of over 30 years, an $930 million cash payout like today’s will equal roughly $368 million owed in Federal taxes.
Income tax will automatically be withheld from any lottery prize, but only at a 25 – 28% rate – so winners need to put aside an additional lump sum to pay their Federal tax bill, which will be based on their actual tax rate. Believe it or not, many lottery winners don’t do this and have to pay the consequences of a much higher tax bill later on.
If the Powerball winner lives in a state with a personal income tax, he or she will also owe taxes to the state. In most states, the tax rates on high-income individuals range from 5% to 10% – so that means between $47 million and $93 million additionally should be held for state taxes for this particular jackpot. Some cities have local income taxes to consider, as well.
The Facts About Gambling Winnings
The odds are you won’t need to worry about paying taxes on more than a billion dollars. (If only!) But, the odds are good that you’ll someday win a smaller jackpot, a sports bet or a stack of cash at the blackjack table.
Casinos and other gaming organizations will send you a Form W-2G when you win $1,200 or more on a slot machine or from bingo, keno jackpots of $1,500 or more, more than $5,000 in a poker tournament and all other games you win $600 or more at, but only if the payout is at least 300 times your wager. Not all gambling winnings are subject to W-2G reporting. When you file with TurboTax, we’ll ask simple questions about your gambling winnings and losses. Then we’ll do the math and fill in the appropriate tax forms based on your entries. Just plug in some numbers from your W-2G and we’ll do the rest.
If you had an unlucky year, know that gambling losses are tax deductible, but only to the extent of your winnings. While gambling winnings are treated like ordinary income, losses are itemized deductions. This requires you to report all the money you win as taxable income on your tax return. However, the tax deduction for your losses is only available if you itemize your deductions. If you claim the standard deduction, then you can’t reduce your tax by your gambling losses. For example, if you won $10,000 in 2015 and lost $20,000, you can only claim $10,000 in losses (up to the amount of winning) in your itemized deductions. For more information call Mike McVay, Accountant 850-725-5696.