What Is the Lottery Jackpot Worth After Taxes?

November 16, 2018

You’ve won the lottery, now it’s time to see how much money you’ll actually be able to collect. Exactly how much you keep in your pocket compared to how much you pay in taxes will depend on several factors. Consider using Encino tax advisors and take a look at these three main variables to understand your lottery winnings a bit better.

Federal Taxes

Because prize money is considered taxable income, 25 percent of any winnings will be withheld by the government. The top income bracket is taxed at 39.6 percent, so depending on your winnings, you could end up paying even more. Whatever percentage of taxes you owe above the standard 25 percent will be due when you file your regular taxes.  

Local Taxes

Most states and even some municipalities require taxes to be paid on lottery winnings, above and beyond what is collected by the federal government. The amount of local taxes you pay will be determined by where you live. States charge anywhere from three percent if you live in New Jersey to almost nine percent if you live in New York. To figure out how much your state requires and whether you need to pay city taxes on your winnings, it can be helpful to hire Encino tax consultants.

Payout Options

Lottery winners typically have the option to get their money in one lump sum payout or to receive smaller annual payments. If you choose the lump sum option, you will have to pay taxes on the full amount up front. In the annual payment scenario, you will get a small portion of your winnings up front and taxes are collected on the prize money after your payout each year.

If you’ve won the lottery, it can be tricky to determine the best options for receiving payouts and making tax payments. You want to ensure you have the money when you need it. Make the right choice about your lottery winnings with help from Los Angeles tax preparation services.

 

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