when you win a lottery, how much tax doyou have to pay on the amount?

Question

im about to claim the winnings for a very large lottery and i am wondering how much tax do i have to pay on the amount and how do i pay it

Answer 1

It's taxed as ordinary income at your marginal rate. The total tax bite will depend upon your current marginal rate and how much you won. The maximum bracket is 35% for federal so it could run about that high. State taxes will come into play on top of that.

The payout is subject to Federal withholding at 25% normally. You can (and should) ask for a higher withholding to make sure that you don't have a large tax bill with additional penalties for underpayment of tax when you file next April.

With a big hit, it would be cheap insurance to consult with a tax pro (CPA or tax attorney, NOT a storefront tax prep mill!) as well as an independent certified financial planner.

Answer 2

In the US, typically when you win lottery over several hundred dollars, the jurisdiction should automatically deduct taxes; therefore, you won't have to pay it on your own. However, be sure that the agency takes out both federal and state, or you will have to pay a penalty at tax filing time. At the end of of the year, you should also get a 1099 indicating the amounts paid.

Answer 3

If the very large lottery is the UK or Nigerian email lottery, you won't owe any taxes because they're scams and you won't be getting any prize money. If you respond to them, they'll notify you that you need to provide either personal info that will allow identity theft, or else a "delivery fee" for your "prize".

If you hit a legitimate lottery like powerball or mega-millions, or one of the state ones, you'd pay income tax at whatever your tax rate is. That would depend on your total winnings, including the lottery prize. If you're talking millions of dollars, you'll pay close to 35% to the feds. And if you really did win a major lottery, consulting a financial advisor AND a tax pro would be wise.