Lotteries have been popular amongst people for hundreds of years. No surprise, if you realize that they can make all your dreams come true. In the past there have been million dollar winners who did not expect it at all. It’s the surprise element that makes lotteries so great. However, you do need to pay taxes after winning a great deal of money. In this article we tell you what to expect.
Paying lottery taxes over your win
Sometimes the lottery main prize reaches astronomical proportions. Especially when the Jackpot hasn’t fallen for a couple of times. At some lotteries more than 50 million or even 100 million dollars euros is at stake! Imagine that you win so much money. You’re not the only happy person then, because the government will have a share of your money as well. In some lotteries you’re required to pay taxes. So the main prize they advertise with and that (hopefully) ends on your bank account could be lower in the end.
Local or federal government decides the amount of taxes
Lottery taxes don’t differ from normal taxes. The local or federal government where you buy the ticket decides how much it will be. It depends on your country and the income tax that is used over there. Usually a tax is deducted by the Lottery Organization before your prize is being paid out. Imagine that you win the Mega Millions Jackpot of 3 million dollars, for example. Congratulations! However, the lottery and the US government will take a 30 percent tax of it. Your post-tax prize will still be a lot of money though, so don’t worry. It might be helpful to hire a financial advisor if you win a lot of money, because this will prevent unpleasant surprises.
Examples of lotteries with taxes
Mega Millions and US Powerball are good examples of lotteries with taxes. Their Jackpots are the amount of money before taxes are paid. The Italian lotteries are interesting mentioning as well. In the Lottomatica Lottery and the new MillionDAY Lottery prizes are always paid as net amounts of a tax of 8 percent has been deducted. However, in some lotteries there is no tax deduction at all. So make sure that you read the rules of a lottery carefully, including the part about taxes. Another option would be to contact a tax professional to learn about lotteries and their tax policies.
Taxation at source
When you read the lottery policies you will probably discover the sentence ‘lottery prizes are subject to taxation at source’. It means that the local or federal government and lottery organization deducts the prizes directly. They depend on several factors, including the amount of money that has been won. Most lotteries use different tax tiers, which are known as ‘tax bands’. So as a winner you receive the prize when the taxes have already been paid. For example, the website theLotter deposits your post-tax prize in your account and does not take commission for it.
What does further local taxation mean?
Another interesting lottery tax term is ‘further local taxation’. You do have to pay taxes, but the exact amount depends on your country. Local taxation is the responsibility of the player itself. Always read yourself into the tax policies of your country or hire a financial advisor.