Winning a large Lottery Jackpot is a dream come true for many! Everyone scrambles around to get last minute tickets and hoping to be a winner of the next large jackpot in lottery history. But lottery participants aren’t the only ones excited about the lottery frenzy, some state governments are just as ecstatic since the taxes on one lump-sum payment could mean millions in state revenue.
Admittedly, your chances of correctly choosing all Mega Million numbers are slim – one in 302,575,350 – but every big drawing is a prime opportunity to think about the tax implications of winning money, big or small.
Your Lucky Day
All lottery winnings are subject to Federal and (sometimes) state income taxes, and sizeable jackpots are taxed at the new maximum federal rate of 37%, which is down from 39.6% due to tax reform. That means if you take your 1.6 billion Mega Millions winnings all at once instead of over 30 years, the estimated $904 million cash payout will automatically be taxed at 24% ($217 million). If you’re the lucky winner you will also still be taxed on the difference between the initial amount taken off the top and the top income rate of 37%.
The Facts About Gambling Winnings
The odds are you won’t need to worry about paying taxes on more than a billion dollars (If only!) But, the odds are good that you’ll someday win a smaller jackpot, a sports bet or a stack of cash at the blackjack table. Casinos and other gaming organizations will send you a Form W-2G if you:
- Win $1,200 or more on a slot machine or from bingo
- Win $1,500 or more on a keno jackpot
- Win more than $5,000 in a poker tournament
- Win $600 or more on all other games, but only if the payout is at least 300 times your wager
If you had an unlucky year, know that gambling losses are tax deductible, but only to the extent of your winnings. Proof of losses can be kept in the form of losing tickets, win/loss statements, etc. While gambling winnings are treated as ordinary income, losses are itemized deductions. This requires you to report all the money you win as taxable income on your tax return. However, the tax deduction for your losses is only available if you itemize your deductions.
Don’t worry about knowing these tax laws. TurboTax will ask you simple questions and give you the tax deductions and credits you’re eligible for. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. A TurboTax Live CPA or Enrolled Agent can even review, sign, and file your tax return.