What about taxes when you win the lottery?
If you have never played the lottery before you might be wondering just what the rules are when it comes to taxes. Or maybe you’ve never won a large prize before and you don’t know if things are a little different when that happens. Well, the short answer is that Uncle Sam is definitely not going to be happy if you decide not to give him a cut of any money that you receive, no matter where you actually receive it from.
Do You Pay Taxes?
The short answer is yes. You are generally going to have to pay taxes on lottery winnings. But there are a couple of things that you should know. The first is that you’re not going to have to pay on anything that is under $600. So, if you picked up a scratch-off ticket and won $2 you don’t need to worry about reporting that to the IRS. That means you’re not going to have to pay taxes on it and you can continue on your merry way from there. On top of this, the rules are all going to be different depending on what state you actually purchased the ticket in.
Some states, like California, Delaware, and Pennsylvania, don’t actually have a state income tax. That means you do not have to worry about paying state income taxes on a ticket if you win any money. You will still have to pay the federal income tax as long as you win over $600 and you’ll pay as much as 25% withholding tax on winnings that are over $5,000. That’s definitely going to be a large chunk of your money and it’s definitely not going to be fun. Especially since states other than those mentioned are going to charge you state tax as well.
Arizona and Maryland actually charge you twice if you win on a ticket and don’t belong to that state. They charge you the regular state sales tax and they charge an out-of-state winner tax. Of course, it’s important to keep in mind that these taxes are all dependent on you picking up a scratch-off or picking up a ticket directly in a store. If you decide to play the lottery online – well, you’re going to have an entirely different experience with paying state taxes (federal taxes are still going to be the same). With the online system, you are responsible for filing any tax documents and putting the winnings on your normal taxes if the amounts are smaller.
What Tax Bracket Am I In?
Well, the tax bracket that you are in and the rate at which you have to pay taxes is actually going to depend on how much money you win. You likely already know what tax bracket you are normally in. What you have to do is add the amount that you have won to your normal, yearly income. From there you’ll be able to see which tax bracket you’re going to fit into and what tax rate you’re going to pay on those winnings. For those who win large jackpots, this can be quite expensive.
For those who win any of the biggest prizes, you will also need to pay attention to just how you choose to take the money. Taking a lump sum will generally put you in the highest tax bracket. Taking a yearly payout, however, will keep your tax bracket lower each year but you are still going to be paying taxes on that money each year until the annuity is over. On the other hand, if you purchase a ticket with a group of people you want to make sure that you get the split properly documented.
If you accept the money on behalf of everyone and then dole it out you could be looking at taxes on the entire amount and those who purchased tickets with you could end up with gift taxes. Instead, make sure that you fully document how each of you bought into the pool and how much money each person is getting. You may want to get assistance from a legal professional for this. No matter how you choose to do it you want to make sure you’re not stuck paying all the taxes. And your friends or coworkers or whoever else went in with you are not going to want to pay the higher gift tax.
Playing Lottery Online
So, if you still have to pay the taxes, what’s the big difference if you’re playing lottery online or if you’re playing directly from your favorite store? Well, the biggest difference is going to be the convenience and the fact that you are always considered as purchasing directly from your own state. That means you are not paying out-of-state winner taxes and additional fees in order to get the money that you’ve won.
Also, when you play with RedFoxLotto.com you’re going to have even more opportunities to win because you’re going to have even more lottery games available. You can play games that are local in your area (or your country) or you can play games that you may not even have heard of before because they are based in an entirely different country. That’s definitely going to increase your chances of making a big win. Just make sure that you remember to file your taxes properly if you do end up with that really big win you were looking for.
If you are playing the lottery online or if you are playing it in your own hometown it’s extremely important that you look for ways to mitigate your expenses. Not only that but you are going to want to pay attention to where you need to pay taxes and just how to do it in the right way. Not paying taxes on your winnings is only going to end up an even bigger problem, in the long run, so make sure you know what you’re doing and that you follow through on all of it. You may need to hire an accountant to help, but it’s all going to be worth it.