The Taxes on Lottery Winnings Not Many of Us are Aware Of. The taxation on lottery winnings can be as high as 45% to 50% in US. This includes the Federal tax, tax levied by the states, and in some cases, taxes levied by the cities. In this article, we will try to know about the taxes that the lottery winners are liable to pay to the government. Lottery Winnings And Gift Taxes. If records were kept about such things, Tonda Lynn, a waitress at a pancake house, may have received the largest tip in history when a customer gave her a lottery ticket that turned out to be worth $10 million. Winnings are taxed the same as wages or salaries are, and the total amount the winner receives must be reported on their tax return each year. Before the winner receives any of the money, however, the IRS automatically takes 24% of the winnings. The rest of the winnings are expected to be paid by the winner when filing the return. What is the tax rate for lottery winnings? For federal taxes, lottery winnings are taxed according to the federal tax brackets. Federal tax brackets are For prizes of $5,001 or more, the Lottery is required by law to deduct the following taxes from your winnings: • 24% federal tax; • 8.95% state tax if you are a Maryland resident, or; • 8% state tax if you are not a Maryland resident. In addition, Lottery winnings must be reported as income when you file your tax return. Income tax will automatically be withheld, just as it is from your paycheck, if your winnings total more than $5,000. According to Maryland law, prize winnings of more than $5,000 are subject to withholding for both federal and state income tax purposes. Maryland taxes will be withheld at a rate of 9.25 percent on a resident's winnings. For a Mega Millions Lottery Winner Will Get a Mega Tax Bill The winning ticket for the $1.05 billion Mega Millions jackpot was bought in Michigan. After federal and state taxes are taken out, that The IRS does require that lottery officials withhold income taxes from your winnings, however, if you win $5,000 or more after subtracting the cost of your ticket. The withholding rate is 24%. The IRS treats that 24% withholding just the same as it would if your employer withheld taxes from your paychecks. It will send you a refund if you don’t end up owing that much when you file your tax return. In fact, most states (and the federal government) automatically withhold taxes on lottery winnings over $5,000. However, withholding rates vary and do not always match state individual income taxes. California and Delaware do not tax state lottery winnings. Arizona and Maryland have separate resident and nonresident withholding rates. Payouts vary considerably across the country, ranging from the lowest in New York at $230,240,220 for the current lump sum to a high of $260,925,000 in states either forgoing an individual income tax or exempting state lottery winnings. The tax brackets are progressive, which means portions of your winnings are taxed at different rates. Depending on the number of your winnings, your federal tax rate could be as high as 37 percent as per the lottery tax calculation. State and local tax rates vary by location.
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