Let’s be frank here, taxes on lottery winnings are a bummer. Imagine…the good news….you’ve just won the lottery!
Introduction: Taxes on Lottery Winnings
The bad news…the IRS will take 25% and maybe the state you live in will help itself to another 13%. Also, you’ll still owe annual federal taxes of 37% depending on where you live. Not as rich as you first thought? You could always try your hand at online poke with Intertops Poker before the government takes it. Yeah, we know, taxes on lottery winnings can be a real downer after the party. But let’s see what you can do to lower your obligations. Maybe you’re better off simply hacking the lottery.
You Mean that Lottery Winnings are Taxed?
Funnily enough, the IRS regards your winnings as ordinary taxable income. Obviously they take your tax bracket into account. On the whole the IRS will with hold 25% of your winnings. You are still on the hook for your annual taxes which you’ll be filing every April. The recent Trump Tax Plan bought the highest tax rate down from 39% to 37%, so winners (and high earners) can enjoy a break. Being in the top tax bracket doesn’t mean you pay 37% on all your income. The rates are progressive. After you deductions here’s what you’ll pay according to online lotto news:
10% on the first $9,700 you earn
12% on the next $29,775
22% on the next $44,725
24% on the next $76,525
32% on the next $43,375
35% on the next $306,200
37% on any amount more than $510,300
For example, if you normally make $40,000 each year and then you had the good fortune to win $100,000. So, your total income would be $140,000 with $25,000 taken from your winnings by the Federal authority. looking at the above table, you’ve been jumped from the 22% rate to the 24% rate. But keep in mind, this doesn’t mean that you’ll be paying 24% on the whole $140,000. you’ll be paying that upper rate only on the portion of money that is over the $84,200. So that’s on $55,800. Let’s break it down. Your total tax bill would be $970 (10% of $9,700) + $3,573 (12% of $29,775) + $9,839.50 (22% of $44,725) + $13,392 (24% of 55,800) = $27,774.50. OK? Now lets move on to the State taxes.
I have to Pay State Tax as well?
Everything depends on where you actually live. For example, New York State takes the biggest cut of up to 13%. New York City is less at up to 8.82%. Yonkers is just 1.477% Other states have income tax rates that are between 2.9% to 8.82%. However, nine states have zero income tax regimes. These are:
Now if you happen to live in one state and buy your ticket in another, then it’s the latter state where those taxes apply. On the whole the above examples are for peeps who take their winnings as a lump sum. But many people choose to receive a monthly payment. Let’s see how that works.
This is how You Minimize Your Tax Burden
Whatever happens, you’re gonna be paying some form of tax on your winnings. So how can we minimize your exposure. For a start if the winnings are small enough, then by taking them as installments over up to 30 years, you can still manage to remain in the same tax bracket. Online gambling sites in the US says that if you decide to share with family or friends, then you’ll be needing to keep one eye on “gift” taxes. On the whole, you can gift $15,000 per year without incurring this tax. Don’t worry too much if you go above this as there’s another statute in place that’ll help you out. The Tax Cuts and Jobs Act raises the Lifetime Gift and Estate Tax Exclusion to about $11.4 million or $22.8 million for married couples filing jointly. So any amount above the initial $15,000 can always count towards that.
Taxes on Lottery Winnings: Give Gifts
If you think that you’re gonna be close to the next bracket up, then keep in mind that direct payments to collages and universities don’t count as gifts. Same for direct payments for medical institutions. Again if you’re married, you can each contribute $15,000 to a person, so that can add $30,000 per year that is gift tax free. And if the lucky recipient is also wed then both you and your spouse can give %15,000 each, which means they will get a nice tax free $60,000. Of course, now you’re a rich baller, playing Intertops poker is a given! And remember folks, gambling does have many benefits.