Lottery Tax Calculator: Here’s Everything You Need to Know

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lottery tax calculator

What’s one of the most elusive goals almost every American dreams of?

Most people would agree—winning the lottery. While the odds are generally slim at roughly 300 million to one, those who are lucky enough to win must proceed with caution.

This life-changing event could quickly alter many circumstances of a person’s life. But without proper planning, it can actually carry some negative effects.

One of the most important factors to take into consideration is lottery tax. It’s important to fully understand this, and how it may affect potential winnings.

With a lottery tax calculator, you can begin to gain a better understanding of just how much the lottery tax amount may be.

In addition to tax payments, there are other financial planning aspects to take into account. While it’s true a large prize can drastically improve a person’s situation, it can also dry up quickly if mishandled.

This is why proper planning is critical for lottery winners. It may just be the difference between life-long wealth and future debts.

For a lottery tax calculator and more information on the whole process, keep reading below.

What Happens When I Win the Lottery?

To receive your winnings, you have two choices.

On one hand, you could elect to receive your winnings in the form of annuity payments. This means you receive a structured set of payments, on a regular schedule.

While this helps to protect winners against winding up in a financial downturn down the line, it does lead to less flexibility with your funds. But—there are usually various options to customize your funding. Learn more about Rightway Funding to get a better idea of funding options for lottery winners.

Instead, you could choose to receive the winnings as a lump-sum payout. This means you have immediate access to your winnings. However, this option puts winners at risk of poor financial decisions that can compromise the full amount of the funds.

Plus, taxes are then due all-at-once the same year in which the winnings are received. If taxes are reduced in later years, you lose the opportunity to capitalize on these savings.

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With this information, you may be left wondering—how exactly are lottery winnings taxed?

How Much Do I Pay in Taxes on Lottery Winnings?

Yes, lottery winnings are taxed. The government considers these funds to be income and therefore taxes them as such. They are generally taxed the same as your salary at a typical job.

As with other income, this is calculated based on the federal tax brackets. They are progressive—meaning that as your income increases, the higher sections of the funds are taxed at a higher rate. The highest percentage of the bracket is 37 percent.

Furthermore, state and local taxes will vary by location. In some places, income is not taxed by the state. In others, state taxes reach over 15 percent.

Plus, if you bought your lottery ticket in Arizona or Maryland, you still have to pay state tax to these governments—even if you reside elsewhere.

The income from your lottery winnings (in addition to other forms of income) must be reported on your tax return in full, on the same year you are awarded the monies. If you choose to take payments in the form of an annuity, you would elect however much you receive that year.

But, there is an additional amount subtracted by the IRS. Before you receive even a penny of your winnings, the IRS will take 25 percent off the top as tax funds. The remainder of your tax liability for that year is due upon filing your tax return.

While this all may sound fairly straightforward, it can sometimes become convoluted when actually putting it into practice. To make things easier to understand, check out our lottery tax calculator.

Lottery Tax Calculator

As touched on earlier, these funds are considered income by the IRS. Like other income, it is taxed progressively in line with federal tax brackets.

To actually calculate the tax you may owe on winnings, consider first your total income. This includes your lottery winnings for that year, in addition to any other jobs or income sources. Then, determine which tax bracket applies to you.

  • 10% rate – up to $9,875 for single individuals, up to $19,750 for married individuals filing jointly, up to $14,100 for heads of household
  • 12% rate – $9,876 to $40,125 for single individuals, $19,751 to $80,250 for married individuals filing jointly, $14,101 to $53,700 for heads of household
  • 22% rate – $40,126 to $85,525 for single individuals, $80,251 to $171,050 for married individuals filing jointly, $53,701 to $85,500 for heads of household
  • 24% rate – $85,526 to $163,300 for single individuals, $171,051 to $326,600 for married individuals filing jointly, $85,501 to $163,300 for heads of household
  • 32% rate – $163,301 to $207,350 for single individuals, $326,601 to $414,700 for married individuals filing jointly, $163,301 to $207,350 for heads of household
  • 35% rate – $207,351 to $518,400 for single individuals, $414,701 to $622,050 for married individuals filing jointly, $207,351 to $518,400 for heads of household
  • 37% rate – $518,401 or more for single individuals, $622,051 or more for married individuals filing jointly, $518,401 for heads of household
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Again, it’s important to note that these brackets are progressive. This means that you fill out one bracket before moving to the next. Plus, don’t forget to review your state and local taxes. It’s imperative that you factor these in, as you are liable for those funds as well.

Now You Know How to Calculate Taxes on Lottery Winnings

Taxes can be confusing enough on their own. Add lottery payments to the mix, and it can sometimes feel overwhelming for the average person to figure out.

Hopefully, this lottery tax calculator made it easier to understand how winnings are actually paid out and taxed accordingly. With this knowledge, you will be better prepared to plan your financial future should you be lucky enough to win the lottery.

These are also just good starting points—for large income like that from lottery winnings, it is best to contact a qualified tax professional for the best advice.

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