A lot of people think that jackpot winners of the lottery are exempt from taxes since a government entity is running the lottery. For the most part, that is not true. Those who win a big jackpot from the lottery are going to have to give some of the winnings back to the government in the form of taxes. Depending on the state of residence for the winner, he or she may be liable for tax liability that reaches 50%. All lottery jackpot winners should expect that a significant part of their winnings will disappear due to taxes. It is important to understand the tax ramifications so that the lottery winner doesn’t get into trouble with the governmental taxing authorities.
A big chunk of the jackpot will be going to the federal government. By law, the lottery will need to withhold 28% of the winnings in order to make sure that the taxes are paid. However, the withholding is often not high enough to meet the total federal tax liability. That is why it is ey important ito make sure that the withholding is sufficient to cover all tax liability. If necessary, the tax liability for the lottery jackpot winnings should be made via estimated tax payments in order to ensure that the lottery winner does not incur any penalties for underpayment of estimated taxes. It is also important to do the same thing for state and local taxes as well. However, those who win the lottery should check to see if lottery winnings are exempt from state taxes. There are some cases it is exempt such as inContinue Reading