- $600 (reduced by the wager at the casino's discretion) for all other types of winnings but only if the payout is at least 300 times your wager. Win at or above these amounts, and the casino will.
- Regular gambling withholding is figured on the total amount of gross proceeds (the amount of winnings minus the amount wagered), not merely on the amount in excess of $5,000. Report the amount you withheld in box 4 of Form W-2G. Also file Form 945, Annual Return of Withheld Federal Income Tax, to report all your gambling withholding.
$1,500 or more in proceeds (the amount of winnings less the amount of the wager) from keno Any gambling winnings subject to federal income tax withholding. Hollywood casino slot machines. Gambling winnings are fully taxable and must be reported on your tax return. Here are the top seven facts the Internal Revenue Service wants you to know about gambling winnings.
Despite the earlier post giving various provisions on taxes on gambling winnings, we have been receiving hundreds of queries seeking clarifications on the amount of tax to be paid on gambling winnings and different circumstances under which an exception can be sought from paying tax at source on gambling winnings. We have thus collated a few practical scenarios in a FAQ format clarifying different tax related aspects concerning gambling, lottery and betting winnings. The position of law has been clarified by Hersh Sayta of Ernst & Young and other eminent Chartered Accountants, lawyers and poker players having practical experience in the subject.
1. What is the rate of Income Tax payable on winnings from any card games, lotteries or other gaming activities?
As per Section 115BB of the Income Tax Act the current rate of Income Tax (as on financial year 2013-14) on poker winnings or winnings from any such card games etc. is 30%. However there is education and higher education cess payable on the taxable amount and hence the total effective amount of tax payable is 30.90%.
Section 2(24)(ix) of the IT Act defines card games and lotteries as follows:
Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.
[Explanation.For the purposes of this sub-clause,
(i) 'lottery' includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;
(ii) 'card game and other game of any sort' includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game.
Section 115BB reads as follows:
Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever.
Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of
(i) the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of 21[thirty] per cent; and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).
2. Are organisers compelled to deduct Tax at Source (TDS) on poker winnings?
As per Section 194B of the Income Tax Act, on any winnings above Rs. 10,000/- (as per laws prevailing in financial year 2012-13) it is the responsibility of persons organising or managing the event to deduct 30.90% tax before releasing the winnings.
Section 194B reads as follows:
Winnings from lottery or crossword puzzle.
The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in an amount exceeding ten thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force :
Provided that in a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings.
3. Are organisers required to give a TDS certificate when tax is deducted on winnings?
Yes, as per Section 203 of the IT Act and Rules framed thereunder TDS certificate has to be supplied by the deductor to the deductee within one month from the end of the month during which the credit has been given or the sums have been paid. [See this link for more information].
4. If prizes are awarded instead of cash, does TDS still have to be deducted?
Yes, TDS has to be deducted to the extent of 30.90% of the value of the gift/prize or the organiser has to ensure that the winner pays the tax amount upfront.
5. What is the liability for not deducting TDS?
Organisers or those responsible for the event can potentially face various liabilities for not deducting TDS and they would have to pay the amount payable, interest and other penalties from their own pockets if the amount is not deducted. Further, prosecution can be initiated for non-deduction of TDS and there is a maximum punishment of seven years imprisonment and fine. No limit texas holdem hand rankings. [See: Sections 201(1A), 221, 276B of the Income Tax Act].
6. Are set-offs permitted before deducting of TDS?
No, set-offs or any deduction/adjustment of costs etc. would not be permitted before deduction of TDS.
7. Is there any liability to deduct additional surcharge over and above the 30.90% TDS in case of gambling winnings?
As per the Finance Bill 2013, an additional surcharge is proposed to be levied on income from gambling under Section 115BB as TDS deductions under Section 194B on amounts exceeding specified limits. The manner and rates at which this surcharge is to be levied has not yet been notified.
Update: As per the Finance Bill, 2013 the following surcharge will be levied on the TDS deducted as per Section 194B:
The amount of tax so deducted shall be increased by a surcharge in the case of
(i) every non-resident (other than a company) at the rate of ten per cent. where the income or the aggregate of income paid or likely to be paid and subject to deduction exceeds one crore rupees ;
(ii) every company other than a domestic company at the rate of two per cent. where the income or the aggregate of income paid or likely to be paid and subject to deduction exceeds one crore rupees but does not exceed ten crore rupees ;
(iii) every company other than a domestic company at the rate of five per cent. where the income or the aggregate of income paid or likely to be paid and subject to deduction exceeds ten crore rupees.
For Income Tax on gambling winnings in terms of Section 115BB the following surcharge shall be levied:
| Total income | Rate of surcharge for domestic companies | Rate of surcharge for foreign companies |
| Up to Rs. 1 crore | NIL | NIL |
| Over Rs. 1 crore | 5% on tax to be paid | 2% on tax to be paid |
The provisions relating to surcharge shall be applicable w.e.f. 1st April 2013.
We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.
Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.
Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.
This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma Tax®.
Hit it big playing the lottery? You're probably thinking about how you'll spend all that sweet cash. But first, Uncle Sam is going to want his cut.
The Internal Revenue Service considers lottery money as gambling winnings, which are taxed as ordinary income. The total amount of tax you pay on your lottery winnings will depend on multiple factors, including the state where you live and whether you take the winnings as a lump-sum payment (one check for the full amount after taxes have been withheld) or an annuity (smaller annual payments that are paid out and taxed over time).
Although you probably won't be able to completely escape the tax man, you may be able to offset taxes on lottery winnings by claiming deductions you qualify for. Here are some things to know about paying federal income taxes on lottery winnings. Keep in mind tax rules may vary for state and local income taxes, so for the purposes of this article, we're talking about federal income taxes only.
Credit Karma Tax® can calculate tax on gambling income Learn MoreDo I have to pay taxes on lottery winnings?
The IRS considers most types of income taxable, unless the tax code specifically says it's not. Because lottery winnings are considered gambling winnings, which are definitely considered taxable income, the IRS will want its cut.
For lottery winnings, that means one of two things.
- You'll either pay taxes on all the winnings in the year you receive the money — for winnings paid out as a lump-sum payment.
- Or you'll pay taxes only on the amount you receive each year — for winnings paid as an annuity.
Take note: If you receive interest on annuity installments that haven't been paid to you yet, that interest must be included in your gross income for the tax year you received it.
How will the IRS know about my lottery winnings?
If your winnings are $600 or more, the lottery agency is supposed to give you a Form W-2G that you'll have to file with your federal income tax return if the agency withheld federal income tax from your winnings.
The lottery agency is also required to send a copy of this form to the IRS if your winnings are $600 or more, so it's important to accurately report your winnings on your federal tax return.
And even if you don't receive a W-2G for your lottery winnings (or other type of gambling payouts), you're still expected to report those winnings as income on your federal tax return.
How could winning the lottery affect my taxes overall?
Getting a huge financial windfall can be life-changing, but it doesn't change everything — you'll still have to pay taxes and bills. Federal and state taxes can decrease the amount of money you ultimately receive, so it's crucial to understand taxes on lottery winnings when you strike it big.
Whether you're all-in on your prize money and accept it as a lump sum or you're receiving payments over time, winning the lottery generally increases your income. Taxes are calculated based on your taxable income for the year, so if the extra income from lottery winnings moves you into a higher tax bracket, you'll typically end up paying more income tax.
If you fail to report taxable income (including lottery winnings) on your tax return, you could owe additional tax, interest and even penalties.
Credit Karma Tax® can calculate tax on gambling income Learn MoreWhat is the tax rate for lottery winnings?
Depending on where you live, you may need to pay taxes on lottery winnings to your state and local governments in addition to the federal government.
Federal tax
Right off the bat, lottery agencies are required to withhold 24% from winnings of $5,000 or more, which goes to the federal government. But, depending on whether your winnings affect your tax bracket, there could potentially be a gap between the mandatory withholding amount and what you'll ultimately owe the IRS.
Even if your lottery winnings don't boost your tax bracket, if the federal government withheld too much tax on your lottery winnings, you might get a refund at tax time.
State and local tax
Each state has its own rules on taxing lottery winnings, so check both your state's tax website and your city's tax website for information. For example, if you live and win in New York City, the state government will withhold 8.82% and the city will withhold another 3.876% — on top of your base federal withholding of 24%.
Seven states — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — don't have income tax, so big winners in those states won't pay state taxes on prize money. Some other states don't have a state lottery at all.
And three more states — California, New Hampshire and Tennessee — exclude their state lottery winnings from taxable income. But before you play the lottery in a different state, check the rules so that you know whether any taxes will apply to your winnings.
Should I take a lump sum or annuity payments?
Whether you get to choose between a lump sum or annual installments for your lottery payout can depend on different factors, like state lottery rules and how much you won. Either way, here's how the two payout types will affect your federal income taxes.
Lump-sum impact
Receiving your winnings as a single lump sum could potentially bump you right into the highest bracket for the tax year in which you win the lottery. That would mean if you win a very large amount, your income over a set threshold ($518,401 for single taxpayers and $622,051 for married couples filing jointly, for 2020) would be taxed by the IRS at 37%.
'If you decide to have a lump sum payment, that would probably put you in the higher tax bracket for that one year,' says Megan McManus, CPA and owner at Megan McManus, CPA.
For example, if you're single and your current taxable income is $40,000, a $1 million lottery payout, taken in a lump sum, would increase your total income to $1,040,000 for the tax year. At the federal level, the portion of your income over $518,401 would be taxed at 37%. But all the lower tax rates would also apply to portions of your income less than that threshold. Here's what you'd pay (rounded to the nearest dollar).
- 10% on income up to $9,700 = $970
- 12% on the next $29,775 = $3,573
- 22% on the next $44,725 = $9,839
- 24% on the next $76,525 = $18,366
- 32% on the next $43,375 = $13,880
- 35% on the next $306,200 = $107,170
- 37% on the last $529,700 = $195,989
If you add all that up, your total federal income tax obligation for the year would be $349,787.
Annual payments impact
Depending on your income, receiving annual payments will also likely affect your tax bracket — but the immediate financial impact could be less.
'The annuity payments would probably allow you to be in a lower tax bracket each year,' McManus says.
Let's look at the above scenario with the same amount of lottery winnings broken out into 30 annual payments of about $33,333.
With the annuity approach, your taxable income would increase to just $73,333 in the year you won the lottery (assuming other factors like a wage increase didn't boost your taxable income). The highest federal tax rate that would apply to your income would be just 22%. Here's what you'd pay (rounded to the nearest dollar).
Casino Winning Taxes Amount Calculator
- 10% on up to $9,700 = $970
- 12% on the next $29,775 = $3,573
- 22% on the remaining $33,858 = $7,449
Your total federal income tax obligation for the year in which you win would be just $11,992. Biloxi casino rooms for rent.
Learn more about the marginal tax rate and what it means for your winnings.
How can I offset federal taxes on lottery winnings?
If you've won the lottery, the IRS expects you to report it as income on your tax return. And Uncle Sam is going to want his share whether you receive your winnings as a lump sum or annual payments. But there are ways to try to offset the increased tax obligation your lottery winnings will cause.
Claim deductions
Casino Winning Taxes Amount Earned
Deductions are dollar amounts the IRS allows you to subtract from your adjusted gross income, or AGI, if you meet the requirements. This lowers your taxable income, which in turn can reduce your tax obligation. Here are two possible deductions (if you itemize).
- Charitable donations — You may be able to deduct the value of your charitable contributions from your income as long as the organization is a qualified tax-exempt organization — but certain conditions and limits apply. For example, you can only deduct cash donations that are equal to no more than 60% of your AGI.
- Gambling losses — You can deduct your gambling losses (like the cost of lottery tickets that you didn't win on) as long as they don't exceed the winnings you report as income. For example, if you report $1,000 in winnings but you have $2,000 in losses, you can only deduct $1,000.
Play the lottery in a pool
If you join a pool with others to buy lottery tickets, then any potential lottery prizes will be smaller because you're sharing it — but your tax hit will be smaller, too.
'You'll only be taxed on your portion of the income,' McManus says, 'so if you receive a third of the winnings, you would only pay tax on that third.'
To make sure you're taxed correctly, document how much of the winnings go to each person in your group. Ask the lottery agency to cut checks for each person in the pool instead of having one person collect and distribute the winnings. This may help ensure you only pay taxes on the amount you actually receive.
What's next
Yes, as per Section 203 of the IT Act and Rules framed thereunder TDS certificate has to be supplied by the deductor to the deductee within one month from the end of the month during which the credit has been given or the sums have been paid. [See this link for more information].
4. If prizes are awarded instead of cash, does TDS still have to be deducted?
Yes, TDS has to be deducted to the extent of 30.90% of the value of the gift/prize or the organiser has to ensure that the winner pays the tax amount upfront.
5. What is the liability for not deducting TDS?
Organisers or those responsible for the event can potentially face various liabilities for not deducting TDS and they would have to pay the amount payable, interest and other penalties from their own pockets if the amount is not deducted. Further, prosecution can be initiated for non-deduction of TDS and there is a maximum punishment of seven years imprisonment and fine. No limit texas holdem hand rankings. [See: Sections 201(1A), 221, 276B of the Income Tax Act].
6. Are set-offs permitted before deducting of TDS?
No, set-offs or any deduction/adjustment of costs etc. would not be permitted before deduction of TDS.
7. Is there any liability to deduct additional surcharge over and above the 30.90% TDS in case of gambling winnings?
As per the Finance Bill 2013, an additional surcharge is proposed to be levied on income from gambling under Section 115BB as TDS deductions under Section 194B on amounts exceeding specified limits. The manner and rates at which this surcharge is to be levied has not yet been notified.
Update: As per the Finance Bill, 2013 the following surcharge will be levied on the TDS deducted as per Section 194B:
The amount of tax so deducted shall be increased by a surcharge in the case of
(i) every non-resident (other than a company) at the rate of ten per cent. where the income or the aggregate of income paid or likely to be paid and subject to deduction exceeds one crore rupees ;
(ii) every company other than a domestic company at the rate of two per cent. where the income or the aggregate of income paid or likely to be paid and subject to deduction exceeds one crore rupees but does not exceed ten crore rupees ;
(iii) every company other than a domestic company at the rate of five per cent. where the income or the aggregate of income paid or likely to be paid and subject to deduction exceeds ten crore rupees.
For Income Tax on gambling winnings in terms of Section 115BB the following surcharge shall be levied:
| Total income | Rate of surcharge for domestic companies | Rate of surcharge for foreign companies |
| Up to Rs. 1 crore | NIL | NIL |
| Over Rs. 1 crore | 5% on tax to be paid | 2% on tax to be paid |
The provisions relating to surcharge shall be applicable w.e.f. 1st April 2013.
We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.
Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.
Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.
This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma Tax®.
Hit it big playing the lottery? You're probably thinking about how you'll spend all that sweet cash. But first, Uncle Sam is going to want his cut.
The Internal Revenue Service considers lottery money as gambling winnings, which are taxed as ordinary income. The total amount of tax you pay on your lottery winnings will depend on multiple factors, including the state where you live and whether you take the winnings as a lump-sum payment (one check for the full amount after taxes have been withheld) or an annuity (smaller annual payments that are paid out and taxed over time).
Although you probably won't be able to completely escape the tax man, you may be able to offset taxes on lottery winnings by claiming deductions you qualify for. Here are some things to know about paying federal income taxes on lottery winnings. Keep in mind tax rules may vary for state and local income taxes, so for the purposes of this article, we're talking about federal income taxes only.
Credit Karma Tax® can calculate tax on gambling income Learn MoreDo I have to pay taxes on lottery winnings?
The IRS considers most types of income taxable, unless the tax code specifically says it's not. Because lottery winnings are considered gambling winnings, which are definitely considered taxable income, the IRS will want its cut.
For lottery winnings, that means one of two things.
- You'll either pay taxes on all the winnings in the year you receive the money — for winnings paid out as a lump-sum payment.
- Or you'll pay taxes only on the amount you receive each year — for winnings paid as an annuity.
Take note: If you receive interest on annuity installments that haven't been paid to you yet, that interest must be included in your gross income for the tax year you received it.
How will the IRS know about my lottery winnings?
If your winnings are $600 or more, the lottery agency is supposed to give you a Form W-2G that you'll have to file with your federal income tax return if the agency withheld federal income tax from your winnings.
The lottery agency is also required to send a copy of this form to the IRS if your winnings are $600 or more, so it's important to accurately report your winnings on your federal tax return.
And even if you don't receive a W-2G for your lottery winnings (or other type of gambling payouts), you're still expected to report those winnings as income on your federal tax return.
How could winning the lottery affect my taxes overall?
Getting a huge financial windfall can be life-changing, but it doesn't change everything — you'll still have to pay taxes and bills. Federal and state taxes can decrease the amount of money you ultimately receive, so it's crucial to understand taxes on lottery winnings when you strike it big.
Whether you're all-in on your prize money and accept it as a lump sum or you're receiving payments over time, winning the lottery generally increases your income. Taxes are calculated based on your taxable income for the year, so if the extra income from lottery winnings moves you into a higher tax bracket, you'll typically end up paying more income tax.
If you fail to report taxable income (including lottery winnings) on your tax return, you could owe additional tax, interest and even penalties.
Credit Karma Tax® can calculate tax on gambling income Learn MoreWhat is the tax rate for lottery winnings?
Depending on where you live, you may need to pay taxes on lottery winnings to your state and local governments in addition to the federal government.
Federal tax
Right off the bat, lottery agencies are required to withhold 24% from winnings of $5,000 or more, which goes to the federal government. But, depending on whether your winnings affect your tax bracket, there could potentially be a gap between the mandatory withholding amount and what you'll ultimately owe the IRS.
Even if your lottery winnings don't boost your tax bracket, if the federal government withheld too much tax on your lottery winnings, you might get a refund at tax time.
State and local tax
Each state has its own rules on taxing lottery winnings, so check both your state's tax website and your city's tax website for information. For example, if you live and win in New York City, the state government will withhold 8.82% and the city will withhold another 3.876% — on top of your base federal withholding of 24%.
Seven states — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — don't have income tax, so big winners in those states won't pay state taxes on prize money. Some other states don't have a state lottery at all.
And three more states — California, New Hampshire and Tennessee — exclude their state lottery winnings from taxable income. But before you play the lottery in a different state, check the rules so that you know whether any taxes will apply to your winnings.
Should I take a lump sum or annuity payments?
Whether you get to choose between a lump sum or annual installments for your lottery payout can depend on different factors, like state lottery rules and how much you won. Either way, here's how the two payout types will affect your federal income taxes.
Lump-sum impact
Receiving your winnings as a single lump sum could potentially bump you right into the highest bracket for the tax year in which you win the lottery. That would mean if you win a very large amount, your income over a set threshold ($518,401 for single taxpayers and $622,051 for married couples filing jointly, for 2020) would be taxed by the IRS at 37%.
'If you decide to have a lump sum payment, that would probably put you in the higher tax bracket for that one year,' says Megan McManus, CPA and owner at Megan McManus, CPA.
For example, if you're single and your current taxable income is $40,000, a $1 million lottery payout, taken in a lump sum, would increase your total income to $1,040,000 for the tax year. At the federal level, the portion of your income over $518,401 would be taxed at 37%. But all the lower tax rates would also apply to portions of your income less than that threshold. Here's what you'd pay (rounded to the nearest dollar).
- 10% on income up to $9,700 = $970
- 12% on the next $29,775 = $3,573
- 22% on the next $44,725 = $9,839
- 24% on the next $76,525 = $18,366
- 32% on the next $43,375 = $13,880
- 35% on the next $306,200 = $107,170
- 37% on the last $529,700 = $195,989
If you add all that up, your total federal income tax obligation for the year would be $349,787.
Annual payments impact
Depending on your income, receiving annual payments will also likely affect your tax bracket — but the immediate financial impact could be less.
'The annuity payments would probably allow you to be in a lower tax bracket each year,' McManus says.
Let's look at the above scenario with the same amount of lottery winnings broken out into 30 annual payments of about $33,333.
With the annuity approach, your taxable income would increase to just $73,333 in the year you won the lottery (assuming other factors like a wage increase didn't boost your taxable income). The highest federal tax rate that would apply to your income would be just 22%. Here's what you'd pay (rounded to the nearest dollar).
Casino Winning Taxes Amount Calculator
- 10% on up to $9,700 = $970
- 12% on the next $29,775 = $3,573
- 22% on the remaining $33,858 = $7,449
Your total federal income tax obligation for the year in which you win would be just $11,992. Biloxi casino rooms for rent.
Learn more about the marginal tax rate and what it means for your winnings.
How can I offset federal taxes on lottery winnings?
If you've won the lottery, the IRS expects you to report it as income on your tax return. And Uncle Sam is going to want his share whether you receive your winnings as a lump sum or annual payments. But there are ways to try to offset the increased tax obligation your lottery winnings will cause.
Claim deductions
Casino Winning Taxes Amount Earned
Deductions are dollar amounts the IRS allows you to subtract from your adjusted gross income, or AGI, if you meet the requirements. This lowers your taxable income, which in turn can reduce your tax obligation. Here are two possible deductions (if you itemize).
- Charitable donations — You may be able to deduct the value of your charitable contributions from your income as long as the organization is a qualified tax-exempt organization — but certain conditions and limits apply. For example, you can only deduct cash donations that are equal to no more than 60% of your AGI.
- Gambling losses — You can deduct your gambling losses (like the cost of lottery tickets that you didn't win on) as long as they don't exceed the winnings you report as income. For example, if you report $1,000 in winnings but you have $2,000 in losses, you can only deduct $1,000.
Play the lottery in a pool
If you join a pool with others to buy lottery tickets, then any potential lottery prizes will be smaller because you're sharing it — but your tax hit will be smaller, too.
'You'll only be taxed on your portion of the income,' McManus says, 'so if you receive a third of the winnings, you would only pay tax on that third.'
To make sure you're taxed correctly, document how much of the winnings go to each person in your group. Ask the lottery agency to cut checks for each person in the pool instead of having one person collect and distribute the winnings. This may help ensure you only pay taxes on the amount you actually receive.
What's next
Winning the lottery could change your life by giving you a certain level of financial freedom. But before claiming your prize, consider speaking with a financial or tax adviser who can help you understand the potential tax impact of your winnings and plan the best way to manage your windfall.
Consider how you plan to use the money.
'If you want to buy a house or put your kids through college, you might need the funds now, as opposed to taking annual payments,' McManus says.
But if your objective is to ensure a steady stream of income, annual payments may be more appealing to you.
Whether you receive your lottery winnings as a lump sum or annual payments though, you'll still have to pay the federal government — and possibly your state and local government — their share of your winnings. So it's important to have a plan for how to best save, invest and grow the winnings you'll keep.
Credit Karma Tax® can calculate tax on gambling income Learn MoreRelevant sources: Topic No. 419 Gambling Income and Losses | IRS: Publication 538 | New York Lottery General Rules | IRS: Pay As You Go, So You Won't Owe
Christina Taylor is senior manager of tax operations for Credit Karma Tax®. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She codeveloped an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor's degree in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.
Related Articles
