# Tax liability and the lotto/large gifts **URL:** \ **Category:** Factual Questions\ **Created:** [June 10, 2014, 10:52am UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464 "2014-06-10T10:52:53Z")\ **Posts on this page:** 13\ **Page:** 2
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [June 10, 2014, 4:17pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/21 "2014-06-10T16:17:04Z")
> [@Northern\_Piper](#): > > Isn’t the difference in prizes more a function of population? For instance, Canada doesn’t tax winnings, and had roughly 1/10 the population of the US. > > Assuming participation rates are the same, the pool for winnings in Canadian lotteries will be roughly 1/10 the pool force innings in the US lotteries. We don’t have a national lottery. They’re conducted at the state level. I think there are a few states that have a joint lottery (Powerball?) ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [June 10, 2014, 5:53pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/22 "2014-06-10T17:53:22Z")
> [@kayaker](#): > > I go through this with end of year (aka xmas) bonuses. I want to give, say, $300 as a bonus. I have to figure out the amount that leaves $300 after taxes. While I know you’re trying to be helpful to your employees, I think you’re also being unfair because you aren’t accounting for how federal income tax withholding works. Let’s take two people, A is exempt from federal income tax withholding and B has their withholding calculated at 25%. (We’ll ignore state issues in this example). If A receives net pay of 300, you only had to gross it up by 7.65% FICA taxes, so their gross pay is 324.85. (300/(1-.0765)) If B receives the same net pay of 300, you had to gross it up by both 7.65% FICA tax and by 25% income tax, meaning their gross pay is 437.00 (300/(1-.0765-.25)). So B has received more money than A - more than $110, nearly 30% more compensation from that bonus. And we can’t even make the assumption that B will owe taxes. Maybe B just likes a big federal income tax refund every year in April and has set their withholding higher because of that. Now, if these are Christmas bonus type payments that are on the employer’s whim, you’re probably fine. If A and B compare pay stubs, they’ll just conclude that you wanted B to get a bigger bonus. On the other hand, if this bonus is specified in some sort of contractual manner (either by saying everyone gets the same, or by specifying the calculated amount) then you could be violating your contract. ---
**Author:** ![kayaker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kayaker/32/441_2.png) [@kayaker](https://boards.straightdope.com/u/kayaker)\ **Post date:** [June 10, 2014, 6:00pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/23 "2014-06-10T18:00:33Z")
> [@dracoi](#): > > Now, if these are Christmas bonus type payments that are on the employer’s whim, you’re probably fine. If A and B compare pay stubs, they’ll just conclude that you wanted B to get a bigger bonus. On the other hand, if this bonus is specified in some sort of contractual manner (either by saying everyone gets the same, or by specifying the calculated amount) then you could be violating your contract. No contract, at will employment, just trying to be nice, no mention of xmas. ---
**Author:** ![kayaker](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kayaker/32/441_2.png) [@kayaker](https://boards.straightdope.com/u/kayaker)\ **Post date:** [June 10, 2014, 6:07pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/24 "2014-06-10T18:07:27Z")
> [@dracoi](#): > > If A and B compare pay stubs, they’ll just conclude that you wanted B to get a bigger bonus. And if that’s a problem for them, they know me well enough to keep their mouths shut or else the complainer will get $0 next year. ---
**Author:** ![Keeve](https://avatars.discourse-cdn.com/v4/letter/k/f07891/32.png) [@Keeve](https://boards.straightdope.com/u/Keeve)\ **Post date:** [June 10, 2014, 6:20pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/25 "2014-06-10T18:20:43Z")
> [@Really\_Not\_All\_That\_Bright](#): > > I think there are a few states that have a joint lottery (Powerball?) Powerball, MegaMillions, and the others are actually conducted in a not-so-intuitive manner. One might think that the various states are joint partners and pool all their money, etc etc etc. Nope. And the proof is that you can’t redeem a winning ticket in a different state, even though it’s the “same” game. I think the main thing they do jointly is to pick the winning numbers. Each state is technically a separate game. Each state sells their own tickets and distributes their own money. The larger states will sell more tickets, but they’ll have more winners too. Small states will sell fewer tickets, but it may take forever until they have to pay out to a Grand Prize winner. In the long run, it will all average out. It’s a great demonstration of the law of averages. ---
**Author:** ![Great\_Antibob](https://avatars.discourse-cdn.com/v4/letter/g/e47c2d/32.png) [@Great\_Antibob](https://boards.straightdope.com/u/Great_Antibob)\ **Post date:** [June 10, 2014, 6:35pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/26 "2014-06-10T18:35:27Z")
> [@Keeve](#): > > Each state sells their own tickets and distributes their own money. This is only partly true. For the big jackpot, all states contribute a portion. When prizes goes unclaimed, each state gets back the unclaimed portion of the pool in proportion to how much it contributed. When you win the big jackpot, you do get money from other states, but it may take longer than the disbursement from your own state. It’s all in the [Powerball FAQ](http://www.powerball.com/pb_contact.asp) though it takes some digging to get to the relevant information. ---
**Author:** ![GusNSpot](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gusnspot/32/436_2.png) [@GusNSpot](https://boards.straightdope.com/u/GusNSpot)\ **Post date:** [June 10, 2014, 7:19pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/27 "2014-06-10T19:19:33Z")
Last worked there in 1998 We never got a bonus or sum-such. We got a discretionary disbursement. We were told up front that the annual salary of all employees is added up and each employee’s % of the total is the portion of the total amount that the company is giving out. So if it was 50K being given and I got 5% of the total payroll, I would get that much of the disbursement. As it was always under the max gift amount, we did not have to declare it as it was a gift from the company. Since no one but the boss knew what the total regular salary was, there was not much point is worrying about what each person got other than to be just nosy or to try to see where you were on the totem pole. As it was just a gift, they did not have to give it and in some tight years they did not give it. Small company with about 35 employees. ---
**Author:** ![bizerta](https://avatars.discourse-cdn.com/v4/letter/b/3be4f8/32.png) [@bizerta](https://boards.straightdope.com/u/bizerta)\ **Post date:** [June 10, 2014, 8:06pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/28 "2014-06-10T20:06:50Z")
> [@Keeve](#): > > Powerball, MegaMillions, … And the proof is that you can’t redeem a winning ticket in a different state, even though it’s the “same” game. Hogwash. How is that “proof”? The reason that one must redeem the ticket in the state of purchase is to insure that the appropriate state tax laws are followed. Otherwise, all winners would redeem their ticket in New Hampshire. (I never would because I’m not foolish enough to buy lottery tickets.) > [@](#): > > … Each state is technically a separate game. Each state sells their own tickets and distributes their own money. … More hogwash. If the winning number is drawn in Idaho, then only the Idaho treasury suffers?? No. Powerball, Megamillions, et al, are one large lottery. From an accounting point of view, each states’ share of the profits is proportional to the number of tickets that are sole in that state. ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [June 10, 2014, 8:14pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/29 "2014-06-10T20:14:55Z")
> [@Lord\_Feldon](#): > > Estate taxes are paid by the estate, at least at the federal level, so there was never a tax bill for you. And even if he were still alive, gifts over the threshold are taxable to the **giver** , not the giftee. > [@Lord\_Feldon](#): > > [States generally tax their own lottery payouts.](http://taxfoundation.org/article/lottery-tax-rates-vary-greatly-state) So CA, DE, and PA are the only states that make it tax exempt? Note that some states, like California, will not tax **their** lotteries, but will tax other states’ lotteries won by California residents. The tax on a $300 bonus is so small, you might just want to hand them a handful of quarters and call it even. Or let them steal one (1) item from the break room. It’s a nice gesture though, but as said, I hope they know the reason for doing it, and don’t just notice that the other guy got $11.17 more than him. Also, would someone working 2 jobs or another source of income throw off the calculations? ---
**Author:** ![GuanoLad](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/guanolad/32/42_2.png) [@GuanoLad](https://boards.straightdope.com/u/GuanoLad)\ **Post date:** [June 11, 2014, 12:51am UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/30 "2014-06-11T00:51:54Z")
> [@Tom\_Tildrum](#): > > The tradeoff is that the top prizes are generally smaller. I.e., the government takes its cut before the payout instead of after. That doesn’t matter, though. You get what you signed up for, so there’s no sense you’re missing out on anything, or getting undercut. If first prize is $25m, that’s what you’re getting in your bank account. ---
**Author:** ![UDS](https://avatars.discourse-cdn.com/v4/letter/u/ecae2f/32.png) [@UDS](https://boards.straightdope.com/u/UDS)\ **Post date:** [June 11, 2014, 1:07am UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/31 "2014-06-11T01:07:47Z")
> [@dracoi](#): > > Now, if these are Christmas bonus type payments that are on the employer’s whim, you’re probably fine. If A and B compare pay stubs, they’ll just conclude that you wanted B to get a bigger bonus. > [@kayaker](#): > > And if that’s a problem for them, they know me well enough to keep their mouths shut or else the complainer will get $0 next year. But it is a problem for _you_, kayaker? Do you in fact want to pay a much bigger bonus to B than to A? After all, even if A _doesn.t_ complain, the realisation that he is being arbitrarily singled out for a lower bonus may be somewhat demotivating. ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [June 11, 2014, 3:14am UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/32 "2014-06-11T03:14:08Z")
> [@GuanoLad](#): > > That doesn’t matter, though. You get what you signed up for, so there’s no sense you’re missing out on anything, or getting undercut. If first prize is $25m, that’s what you’re getting in your bank account. I was going to be a smartass and point out that it would be less that $25 million if you take the lump sum, but it looks like that’s the only option with the Canadian lottery, so that’s what you get. Also: Dear American (or other) Octogenarians: Did you get a letter saying you won the Canadian lottery? Don’t remember buying a ticket? Never been to Canada? They want you to pay for “fees” first before they pay you? This is a scam. Show it to your grandson and ask what he thinks. ---
**Author:** ![Mama\_Zappa](https://avatars.discourse-cdn.com/v4/letter/m/71e660/32.png) [@Mama\_Zappa](https://boards.straightdope.com/u/Mama_Zappa)\ **Post date:** [June 11, 2014, 1:20pm UTC](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464/33 "2014-06-11T13:20:02Z")
> [@Keeve](#): > > This balances my shock in my previous post. I’m very pleasantly surprised to see an employer that puts that much concern into such things. My husband’s employer did that with several small bonuses he got; the bonus came in the form of a Visa gift card or similar, and his next pay statement reflected income of, say, 140 for a 100 gift card (assuming 25% for federal tax, 7 for social security, 8 for state). It was actually funny the way they did it, as they listed the 140 as income, then 100 as a post-tax deduction. [Previous page](https://boards.straightdope.com/t/tax-liability-and-the-lotto-large-gifts/690464.md?page=1)