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Lottery Winnings

Lottery winnings can be a blessing or curse. While everyone dreams of winning a lottery jackpot and becoming an instant millionaire there are certain considerations which should be reviewed before cashing in that winning lottery ticket.

Lottery winnings are subject to both state and federal taxation. Combined, these taxes could amount to 50 percent of the winnings. Individuals who elect to receive a lump sum payment for their lottery winnings receive considerably less than individuals who elect to receive payments over a period of time.

Jackpot lottery winnings are generally paid over the course of 20 to 25 years using a structured settlement annuity. These annuities are backed by life insurance companies and paid out in smaller increments. This places lottery winnings in a lower tax bracket and allows for a larger payout with less taxation.

When lottery winnings are dispersed in a lump sum cash payment, the Lottery Commission typically pays around 65 percent of the actual amount won. For instance, if lottery winnings are $1 million, the lump sum payment would amount to $650,000. Throw in the 50-percent combined tax rate and final payment only amounts to $325,000. That's a huge difference in payout, wouldn't you agree?

Prior to deciding whether to accept a structured settlement annuity or lump sum cash payment, lottery winners should consult with a professional financial advisor. It is suggested that nearly 75-percent of lottery winners elect to receive the lump sum cash payment. Of those, nearly 90-percent are broke within five years. Avoid being a statistic by becoming educated about investment options for lottery winnings.

There are multiple ways to invest lottery winnings which can double or triple your earnings. When possible, it's best to plan in advance for major lottery winnings. Significant savings can be achieved by examining and understanding the taxpayer's current situation and the impact jackpot lottery winnings will have on their tax bracket.

While lottery winnings provide the opportunity for financial freedom, it also presents complex tax issues which require careful attention and planning. Thoughtful application of investing techniques can minimize or eliminate many of the tax consequences associated with jackpot lottery winnings.

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Published on July 18, 2008 at 09:44 AM | Comments: 40

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Do you have to claim taxes on lottery winnings every year if you paid all the taxes at the time you claimed your winnings? For example if I won the florida powerball paid all the taxes and go a lump sum of 70 million would I have to claim the 70 million every year for income tax or as any other tax?

Gene Terry | October 5, 2009 3:09 PM


If you generate income every year from your winnings or you are receiving additional income from the winnings then the answer is YES.

Simon Volkov | October 12, 2009 8:22 AM


Question for Simon: Using your example above of $1m, and taking the annuity, you would receive $32,500 a year. (a) Using 38% fed tax and 4.75 state, your going to receive how much net? (b) Over 20 years? (c) Is b than $325,000?

My concern with the lower rate is the loss of tax advantages and the wait factor (no idea what that is on this amount). I agree the annuity long term route is great if you want a steady flow of cash and not want the responsibility of owning 650k. I'm also wondering what kind of investments I can make taking the lower amount. Seems I could

Sal Paradise | December 7, 2009 12:43 PM


Can u Help me:if i win a 100 million dollars from the powerball in florida?

What would be my fed tax bracket if i am single person not married and having no children. what is the full amount that i will be required to pay to the IRS.

In florida they are no state tax on lottery winings.
so there must be a federal tax somewhere.

How much money will i really get if i win powerball at above mention

win 100mill | December 21, 2009 2:55 PM


Yes we can consult to you f you win. Good Luck!
If you win you will be in the highest tax bracket and subject to Fed and State Taxes.
You will be taxed on 100% of the total winnings which will leave you ruffly 50% of the gross.

Simon Volkov | December 23, 2009 9:39 AM


"Individuals who elect to receive a lump sum payment for their lottery winnings receive considerably less than individuals who elect to receive payments over a period of time."

If you look just look at the absolute numbers, this is true but that doesn't factor in the time value of money. The reason why it's considerably less is because that amount is the net present value of the cash flow of the structured payment/settlement over the 20 or 25 years at a discount rate.

John Carey | January 27, 2010 6:35 AM


Can annuity lottery winning be inherited if the winner has a spouse or children?

Dianne | February 4, 2010 9:46 AM


Yes, It passes threw to next of ken

Simon Volkov | February 4, 2010 9:50 AM


I won $349,997.00 (GA) last year. 31% was taken off the top. My additional income for the year was less than $18,000.00 (some of which was SS). I do have some deductions for gambling losses. Not knowing what my additional deductions amount to yet - do you see me having to pay additional tax on the winnings - or the reverse? Meaning - is it conceivable that I may get back some of the 31% I paid? Thank you.

June | February 23, 2010 6:41 PM


The first thing you should do is hire a great accountant. Since I am not familiar with your finances there may be some elements that you can do that might be beneficial for you.

Don't just hire the first accountant that you see.

Interview several until you find the one that you are comfortable with.

Simon Volkov | February 24, 2010 11:20 AM


The cash option is the amount of money the lottery WOULD have paid to purchase the bonds that would have then provided you the "jackpot" paid through annuity. IF you factor in the time value of money, those annuity payments are worth less and less each year. You are guaranteed to feel less enthusiastic about your annuity payout in year 20 than you are about your first check. (Does anyone remember the price of gas in 1990?)

Do you trust yourself? If so, take the cash payout. Find the best financial planner available. Invest your money. You'll earn more over the course of time investing it yourself than you'd get simply taking the annuity. Don't lose your mind and go buy a $20m house and your own jet plane.

If you don't trust yourself, take the annuity.

No matter what, you're going to pay taxes, so get over it! If you take the cash option, you will pay taxes ONCE on the original draw and then you will pay taxes on all interest earned on the investments you make with the money. A good tax attorney and/or accountant will minimize the tax liability as much as possible...but understand that you will pay.

Taheerah | April 21, 2010 4:09 PM


Check with your state law. You are NOT required to pay certain types of fed taxes on income (whether labor or exchange). However your state may want you to pay state tax. This is written in black and white for each state so its not hard to find. Now if its considered corporate in any way then you best pay up or face fines and jail time. Ultimately its up to the state.

Look at cases (precedences) where this was the case in your state and you'll know what to do. The IRS will look into your life regardless - since your hit the jackpot. Protect yourself and know the law. But they are changing the laws to benefit them and illegally steal more tax payers $ in 2011 so be prepared.

thelawisthelaw | April 22, 2010 9:19 PM


Ok here is a question that has not come up yet.
say a person won a lottery and elected to have the annuity payments, so for the next 20 years he would have income coming from the lottery.
say he is a big gambler (casinos, lottery, etc) say he was losing 100k a year in the next 20 years (hopefully that would not happen)
can he show that loss on taxes? (this is presuming he had no w2g from the casinos for winnings)


tom | June 10, 2010 3:04 AM


This is my suggestion! Contact your (CPA) this could be a lengthy conversation with only a few options, so I recommend you contact your certified public accountant.

Simon Volkov | June 10, 2010 8:17 PM


There is lots of Great offer in the all over the Finance world regarding Lump Sum Annuity ........The best part about about lump sump annuity is that accidental claim you get lots of benefits about this.....!! thats Really Great .....!!!

Lump Sum Annuity | June 11, 2010 5:02 AM


I just want to make sure. Right now the Washington State Lottery Jackpot is $6.1 million. If I were to take win the jackpot, it states "cash option" $3 million. Now is that $3 million already taxed? or not? I believe Washington state does not have state tax on lottery but fed tax. Is that $3 million going to get taxed? If win 6.1 mill and receive about $2 million...



Tim | July 27, 2010 11:48 PM


No, the 3 Million is NOT already taxed.

You Will have to pay State and Federal Taxes.

Contact your Tax Attorney and an Accountant in Your State

Simon Volkov | July 28, 2010 9:08 AM


Nice Article, i wants to include some more to this.......

Some of these plans are also growth investment plans with assured Lump Sum Annuity in addition to some health coverage plans, etc. Some investment plans include payment of Lump Sum Annuity to the spouse or any other nominee either at the same rate or at a revised rate.

Well working after retirements is an another option if one really wants to earn money or to increase savings.but it also has some pros and cons.working after retirements totally depends upon individual choice or his/her financial status/position.

Lump Sum Annuity | August 4, 2010 11:39 PM


I have never bought a lottery ticket. The very thought of having to give one third of the money to the state and relatives begging for charity has stopped from doing that madness.

top ten poker rooms | November 29, 2010 9:30 AM


I've heard about loans with annuitant payments but I didn't know one could receive one's winning that way. it's like hitting the jackpot every year.

casino reward | December 6, 2010 8:59 AM


if i take a lump payment say $10 mill
where do i put it, banks only insure $100,000 per account one account per bank
does a trust have a limit to which it is 100% protected
where is the money?
are bonds 100$ protected?

letitride | January 1, 2011 8:46 PM


Suppose a person wins a jackpot of $300,000,000 and they take the lump sum option, thereby reducing their actual winnings to roughly $195,000,000. Will they be taxed for the jackpot amount of $300,000,000 or the actual amount they receive (roughly $195,000,000)?

Preston Sims | January 8, 2011 9:37 PM


Supposing you win in the lottery, where would you posts your winnings and your losses in the IRS Form 1040?

Joselito N. Rigor | January 15, 2011 2:19 PM


For MegaMillions and Powerball you only pay 25% federal taxes. Also some states also offer discounted tax rates or no taxes at all. For instance here in my home state of Penn. the normal state tax rate is 3.07% however if you win you pay no state taxes.

Richard | March 12, 2011 9:09 AM


My LLC partnered with a local muncipality zoo to construct a $1.2 million outside feature of a new elephant exhibit. The muncipality gave the LLC a $600,000 Tax Deduction for the work. Where is the best place to find a lottery winner or a new member for the LLC that can utilize the federal tax deduction.

Jeffrey S. Lewis | March 16, 2011 12:24 PM


If you purchase a winning Mega Million Lottery ticket in another State, do you have to pay income taxes in that State if your State participates in the Mega Million Lottery ? Thanks

Fred | March 20, 2011 4:31 PM


What's about paying taxes after a lottery win if you are NOT US citizen but US resident? Do they have to pay only US taxes or additional foreign country taxes?

Herbert Martin | June 24, 2011 10:41 AM


Yes you have to pay US taxes.

In regards to foriegn country taxes you should consult a tax attorney in that specific country you reside in.

Simon Volkov | June 26, 2011 8:58 PM


If you are married and your spouse wins the jackpot lottery can the father/ mother of your children go after extra money for support? Does that count towards spouse income or both?

lisa | August 10, 2011 6:51 PM


Suppose I win a lottery in NY State, such as Win $1000 a Week For Life. If I wish to move to another state, or perhaps another country such as Canada, would I be able to continue to collect my lottery winnings(all hypothetical; I haven't won ANYTHING)?

Russ | October 16, 2011 8:56 PM


What if I take the money out the country, lets say Switzerland ??

Hernan Tovar | October 18, 2011 11:03 AM


If you won the lottery and then moved to a state that has no state income tax could you avoid the state tax of the state where the ticket was purchased. Is the tax based on the state the ticket was purchased in or the state of your legal residence when you claim the ticket?

Wil | October 21, 2011 4:20 PM


Depending in what State you live in you may have to pay State tax. Also you will have to pay Federal taxes immediately and in some cases before you get you money

Simon Volkov | October 21, 2011 4:59 PM


No, You are not going to be able to avoid State Tax. You will have to pay it from the State you purchased it in and the State that you reside in at the time of purchase. (Note: Some States do not have income tax)

If you win immediately hire a Financial Planner/Estate Lawyer and an Accountant before you collect on the ticket so they can create a plan that will work best for you.

Simon Volkov | October 21, 2011 5:09 PM


i won 5000 in a casino and didnt take out the taxes.. would they take it out from my current tax refund

amanda | January 20, 2012 4:30 PM


do federal or state goverment will allow lottery winnings after paying taxes be deposited overseas bank account?

ROGELIO ROSAL | April 13, 2012 12:08 PM


why some lottery winners are registered as LLC?
can they be taxed as corporate income than individual?
is it less tax in that case?

kim | November 28, 2012 8:52 PM


If you receive a lump sum of $800,000 winings here in Florida, will the 25% they take out will be enough?

Jose | December 6, 2012 10:27 PM


There are many reason for registering as a corporate entity for liability reason mostly. We suggest that you contact a registered Financial Planner in Your State where you won the Lottery prior to cashing in your ticket.

Simon Volkov | December 6, 2012 10:35 PM


More then likely 25% is not enough.

Your first step before you collect any sum of money is to contact a Registered Financial Planner from a major firm. They will have a team of accountants and possibly lawyers that can view all State and Federal laws and plan the best tax strategy for your specific circumstance.

You must due your own due diligence and interview several firms before you hire anyone of them.

Simon Volkov | December 6, 2012 10:42 PM


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