Gambling Winnings Tax Rate California

24-05-2021

Gambling Winnings Tax Rate California

Tax Rate On Gambling Winnings In California
Gambling Winnings Tax Rate California By Address
Gambling Winnings Tax Rate California Sales
Federal Tax Gambling Winnings
10% Tax On Gambling Winnings

Surprise! Despite having some of the highest taxes in the country, California does not tax lottery winnings. It’s one of a small handful of states that don’t. The winner has to be a California state resident to qualify for this exception. If you're not a California state resident but bought your winning ticket while vacationing in California, you’ll be subject to your home state’s tax laws.

Any winnings subject to a federal income-tax withholding requirement; If your winnings are reported on a Form W-2G, federal taxes are withheld at a flat rate of 25%. If you didn’t give the payer your tax ID number, the withholding rate is 28%. Withholding is required when the winnings, minus the bet, are: More than $5,000. Therefore, you won’t pay the same tax rate on the entire amount. The tax brackets are progressive, which means portions of your winnings are taxed at different rates. Depending on the number of your winnings, your federal tax rate could be as high as 37 percent. State and local tax rates vary by location. IL is the ONLY state that DOES NOT allow you a credit for taxes paid to another state on gambling winnings. Their stance is that IL does not tax nonresidents for gambling winnings they win in IL and IF other state followed this same rule, they would not tax IL residence.

No California Tax on Winnings

The California Lottery will still withhold 24 percent of your winnings to pay federal taxes if you’re a U.S. citizen or resident alien, and 30 percent if you’re not. The California lottery taxes Scratcher winnings the same way if they're $600 or more. The store where you bought the Scratcher is not required to report winnings to the IRS of less than $600. However, all lottery winnings are considered income and should be reported to the IRS as “other income” on Form 1099 MISC, Miscellaneous Income.

The California Lottery will mail you an IRS Form W-2G, Certain Gambling Winnings, by Jan. 31, the year after you won the lottery. This form shows the amount of your winnings like a W-2 shows the amount of your earnings. Also like a W-2, you submit the W-2G to the IRS with your tax return. You should also keep a copy for your records.

Winnings Calculators Online

You can find a “taxes on lottery winnings calculator” and Powerball payout calculator online. These calculators will give you an idea of what the taxes on your jackpot will be. You just fill in the state where you bought the ticket and the amount of your winnings. It’s best to use these tools as estimators only. For starters, they don’t factor in whether or not you’re a U.S. citizen or resident alien which can affect the result. Neither do they account for what you made at the job you quit after you won the lottery.

California Lottery Tax Calculator

A California lottery tax calculator is available on the lottery’s website for Jackpot Captains. Jackpot Captain is the California Lottery’s name for people who organize their co-workers or families to pool their money to buy larger lots of tickets than each individual could buy on their own. To become a Jackpot Captain, you first have to be a registered player. To become a registered player, you just need to fill out a short form on the California Lottery’s website. Both registered players and Jackpot Captains have to have valid California addresses.

The California lottery tax calculator will tell you the total amount of money that will be withheld from your group’s total winnings. It may also help you estimate the amount of taxes that will be paid by each individual.

Note that the California Lottery will make individual payments to members of groups that are 100 people or less. Members of a group must pick the same payment option – a one-time cash payout or installments. Jackpots are set up to be paid in 30 installments by default. If you want the one-time cash value payout, you have to ask for it within 60 days of submitting your winning ticket.

Total Taxes Owed

What you ultimately pay in federal tax for the year you won the lottery will probably be higher than the 24 or 30 percent that the California lottery withholds. The total tax you’ll owe will be based on the amount of your winnings, your individual financial situation and any changes in federal tax rates. So be sure to consult a professional tax adviser who can help you determine your total tax liability.

State Taxes on Earnings

Assuming you’re not going to keep your newfound wealth under the mattress, the interest that it earns after you deposit it in a bank or credit union is considered income. As such, it’s taxed by the IRS and the state of California. The same goes if you invest your jackpot. The interest earned or dividends paid on invested funds are also subject to federal and state taxes.

The California Lottery Winner’s Handbook and good sense decree that you get good financial planning advice early. Savvy financial planning can help lower the taxes you’ll have to pay. Be sure to interview and research any financial adviser before handing over your money. The bank or credit union you currently use can be a good place to start in finding reputable help.

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About the Author

LeDona Withaar has over 20 years’ experience as a securities industry professional and finance manager. She was an auditor for the National Association of Securities Dealers, a compliance manager for UNX, Inc. and a securities compliance specialist at Capital Group. She has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She has done volunteer work in corporate development for nonprofit organizations such as the Boston Symphony Orchestra. She currently owns and operates her own small business in addition to writing for business and financial publications such as PocketSense, Zacks and Budgeting the Nest.

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Tax Rate On Gambling Winnings In California

Paul Kane/Getty Images News/Getty Images

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All you need is a dollar and a dream. That slogan basically sums up the Cali Lotto. If you win big and achieve your dream, keep in mind that a percentage of the money will go to taxes. While California is a relatively high tax state, there’s an exception for CA Lottery winners.

Tip

You can typically expect to pay the highest federal tax rate of 37 percent on your lottery jackpot winnings.

Super Lotto and More

Whether you’ve won the Super Lotto, Mega Millions or Powerball lotteries, the way the jackpots are paid are the same. Each major prize is paid in 30 graduated annual installments by default. California does not charge state tax on these winnings, and there are no local taxes, but federal taxes are withheld from the annuity checks. Keep in mind that although the lottery winnings are not subject to California state tax per se, winners may find themselves liable for local and state taxes based on their overall annual income.

There is an exception to the general rule that lottery winnings are not subject to California taxes. If you purchased your winning ticket out of state, you will have to pay California state taxes on the amount.

Lottery officials urge winners to obtain legal advice and consult a tax professional after claiming their prize. By law, the name of Cali Lottery winners is public information, so you may find yourself with a lot of new best friends. The winnings will change your life irrevocably, so make sure you seek out sound financial management.

Winner’s Payment Choices

Lottery winners don’t have to settle for the annual payment. They can decide to take the cash option, which is less than the jackpot amount. That’s because the jackpot amount is based on the state government investing the money and the winner receiving the annual annuity. At the end of 30 years, the amount will equal the announced jackpot.

If you’re concerned that you may not live another 30 years, that’s not necessarily a reason to choose the cash option. If the winner dies, their estate should contact the CA Lottery so that annual payments are made to the winner’s beneficiaries.

You can designate beneficiaries beforehand by filling out the Lottery Beneficiary Designation obtained from the lottery’s prize payment annuity desk. You can change beneficiaries at any time simply by filling out another form. Winners who do not fill out such forms will have their payments made to beneficiaries either by court order or via established lottery procedures.

Federal Taxes on Lottery Winnings

If you win big in 2018, the federal tax bite is a little less than in previous years because of the Tax Cuts and Jobs Act, signed into law by President Donald J. Trump on Dec. 22, 2017. It lowers the highest tax bracket, which you are probably now in, to 37 percent.

Since CA Lottery withholds 25 percent of the winnings for U.S. citizens and resident aliens who provide a social security number (28 percent of the winnings for U.S. citizens and resident aliens who do not provide a social security number) for the IRS, you’ll have to pay the remaining 12 percent (or 9 percent if you don't provide a social security number) at tax time.

Report your lottery winnings from Form W-2G as 'other income' on Line 21 of Schedule 1 (1040), including any winnings that are not reported on W-2G. If you have no adjustments to income on Line 36 of Schedule 1, transfer the total on Line 22 (which includes your lottery winnings on Line 21) to Line 6 of Form 1040.

The IRS should mail all big winners of lotteries the Form W-2G by Jan. 31, 2019.

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