Tax Payments on Lottery Winning Payout Options

  by: JohnCurio - Category:

Taxes on Lottery Winnings
Both federal and state taxes are applicable on lottery winnings, though in some regions, lottery winnings may be subjected to local income taxes too. The total tax percentage may vary, based on the winner’s annual income and the total winning amount. After calculating the taxable amount imposed by the federal and state jurisdiction, the tax may at times total up to even 50 percent of the lottery amount.

According to the jurisdiction applied in the concerned state, there may be options for receiving the lottery winnings. In general, there are two choices, namely; lump sum payment and installment payments. Also, the taxable percentage may change according to Internal Revenue Service regulations. The following is a brief discussion about lump sum cash payments and installment payments:

Lump Sum Cash payment
If a winner has selected a lump sum payment of the lottery amount, the lottery commission pays about 65 percent of the total cash. This amount is subject to the federal and state taxes, which may amount to about 50 percent of the remaining money. For example, you won $1,00,000 lottery and the lottery commission gives you $65,000. After tax deductions, the amount you receive could be just about $32,500.

Installment payment
Speaking about the installment payments of lottery winnings, the ideal option is to select for a structured annuity plan. Under such annuities, insurance companies are involved, which are responsible for payment in small fractions at regular intervals, with increments. The major advantages of installment payments for lottery