Lottery Prize Taxes. A federal withholding of 24 percent is made immediately from lottery wins worth $5,000.01 or more. Non-U.S. residents lose 30 percent. Lottery prizes are counted as income and you must declare the winnings at tax time. Winners will need to file IRS form W-2G if the prize is $600 or above. 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. $600 or more and if the winnings are at least 300 times the amount of the per board wager, For prizes over $5,000, the winnings are subject to federal income tax withholding. The tax withholding rate is 25% for winnings, less the wager, that are greater than $5,000. The winnings are subject to federal income tax withholding (winnings greater than $5,000.00). The tax withholding rate is 24% for lottery winnings, less the wager, for prizes greater than $5,000. Prize withholdings are calculated on the total amount of gross proceeds (the amount of winnings minus the amount wagered). Therefore, you won’t pay the same tax rate on the entire amount. 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. No income tax. Texas. No income tax. Utah. No lottery. Vermont. 6.0%. Virginia. 4.0%. Washington. No income tax. West Virginia. 6.5%. Wisconsin. 7.75%. Wyoming. No lottery. District of Columbia. 8.5% 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 progressive, so portions of the winnings are taxed at different rates, and could be as high as 37%. State income taxes vary by location. Some states do not have a state income tax, while others may withhold up to 8.82%. The states that do not levy an individual income tax are: Florida; New Hampshire; Tennessee; Texas; South Dakota Michigan has a flat income tax rate of 4.25%. Applying that rate to the $776.6 million lump-sum payout results in a state tax bill of approximately $33 million. Next in line is the federal tax bill. Your lottery winnings are taxed just as if they were an ordinary income bonus. This means your income will be pushed into the highest federal tax rate, which is 37%. There is no way you can work around this—the U.S. government does not give tax breaks to even the luckiest people in the country. 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%.
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