Hello and good morning,
I have a fairly simple tax question regarding lottery winnings taxes that has turned out to be a bit confusing due to conflicting info from the IRS website vs the Oregon Lottery site.
OK so here it is in a nutshell I live in Oregon and I won a $4,000 Oregon Video lottery jackpot on a machine at the tavern.
So I drive to the Lottery Office in Salem to redeem the ticket and they congratulated me & blah blah paperwork blah paperwork and whatta ya’ know I’m am out the door with a $4000.00 check just like that. Now I assumed they would withhold the taxes and make my life easy but they didn’t withhold any state or federal taxes and I know damn well the IRS is gonna ask to get there cut of my prosperity so I want to plan ahead.
They did give me a Form W2-G and said I had to file it with my income tax return. I want to put the taxes I will owe in my savings account so I don’t spend it and screw myself out of part of my tax refund later.
So my question is how much Federal tax will I owe on this $4000.00 and How much state taxes will I owe to Oregon.
Here are some figures about my income if you need them:
gross salary: $25,000 year + $4000.00 Jackpot
filing status: Single, Head of House hold
dependents: 1 (my son)
Tax Form: 1040
I have no special tax situations at all other than this $4000.00 winning I just don’t know how to figure it out, the IRS site says 25% withholding on all gambling winnings and then the Oregon Lottery site says ?% based on total income and then turns around and says prizes over $5000.00 are taxed at 25% and are automatically withheld. So I am a little confused about how much to save since I don’t know the percentage for the federal taxes on Oregon lottery winnings. Now I am assuming that the percentage for Oregon state is 8% but not sure. Please help this money is burning a hole in my pocket
You’re in the US 15% marginal tax bracket. So you will owe .15*4000 more dollars this year than if you hadn’t won.
It would have been best to have ~400 federal taken out when you claimed your prize and paid 200 more later.
Forget tax refunds. (And you’re certainly not going to get one doing things this way.) Shoot to pay slightly under what you owe and pay a small amount at tax time. Refunds may be fun psychologically, but they are bad economically. (Having far too little withheld causes many headaches: interest, possibly penalties, having to file quarterly returns in the future.)
You may not itemize your taxes but, if you do, you can also subtract off any gambling losses you incurred as well. For example, if you gambled and lost $1000 this year before you won the $4000, your gain would only be $3000 and that is what you would be taxed on and not the whole amount.
Rather than putting the money in your bank account to avoid spending it until tax time, you may want to consider paying estimated taxes. This way, you’re less likely to run into fewer potential problems, such as spending it or risking a penalty for underpayment (surely greater than the interest of most savings accounts). The 1040-ES (at link) contains the general rules on the first page or two to determine if you ought to, and if so the rest of the publication includes things like worksheets to calculate how much.
At least over here in the UK, gambling gains and losses are of no interest to HMRC. If I win a £million with a premium bond (Government lottery) I get to keep it all.
Who prepares your income tax returns? What credits do you normally get? You can do a search for ‘2013 tax calculator’ and find some sites where you could enter your info and estimate your 2013 liability. If you have federal tax withheld from your paychecks it sounds unlikely that you would end up owing more than $1,000 and having to pay a penalty. And you could always stash $1k in your savings account to be on the safe side until your 2013 return is finalized…that’s what I would do.
Yeah, here’s what I’d do. Just send the IRS a check for a grand. This is likely an overpayment, and you’ll get a nice refund. But if you work a lot of OT or something, then you won;t end up in the hole instead.
See, not in this case. People tend to blow thru found money too fast and on things they later or wish they hadn’t. Having a refund later on will soften this. That’s why I suggest sending the IRS $1000. Very likely a $400 refund yes, but otherwise the OP is very likely to blow the $4K and have nothing to show for it other than a $600 tax bill in April.
Yep! This is good advice. Send the Feds $400 as an estimated payment on your 2013 tax liability. Or go to the accounting office where you work and have them deduct more money form each of your paychecks. It’s a pretty simple process to change your withholding from 2 to zero.
Ever think of actually calling the IRS? They actually will help out when people have questions like that. I have called occasionally with questions and everybody I have spoken with have been very nice and the information given was very helpful.
Every jurisdiction is different. Here, in Massachusetts (US), lotteries typically pay 60% back to lottery winners. The winnings are then taxable. Large winners keep about 60% of the winnings after taxes. I looked into one Canadian lottery, where the winnings were tax free. The Canadian lottery typically paid back about 35% of the prize pool to the winners. The after-tax payouts were about the same. I have no knowledge of UK lotteries.
[Opinion]Lotteries are a tax on the mathematically stupid. I thank them for lowering other taxes. [/Opinion]
So far, everyone has forgotten about Earned Income Credit. Unless the OP has some disqualifier, going from 25k AGI to 29k AGI will reduce the EIC from $1,909 to $1,270 (I’m using 2012’s tables; 2013 will be similar). So not only will there be about $600 of tax, but credits will be reduced by $639, and the total decrease in refund will be $1,239.
And the real takeaway from my point is this: Go talk to someone who can look at your prior year returns and give you a real answer.
I was pleasantly surprised to see that this link says that the gambling losses go on Line 28, and are NOT subject to the 2% threshold rule.
HOWEVER, you’d still need to itemize your OTHER deductions, and if there’s no mortgage interest or other big itemizable deductions, you’ll probably be better off with the standard deduction, in which case gambling losses won’t make any difference.