Winning the lottery, big or small, is a cash bonanza that can give you enough money to buy anything from a new television to an exclusive mansion, depending on your prize. No matter how much you win, don’t forget that the government will be wanting a piece of it. Report lottery winnings along with the rest of your income to stay out of trouble at income tax time.
Gather any W-2G forms you have for the current tax year. You should have only one form for each win unless you received more than one payment during the calendar year. The Internal Revenue Service also gets a copy of this form from the organization that is paying you your lottery winnings.
Fill out the long federal income tax form, the 1040. You aren’t allowed to use any of the simplified or shortcut forms to report lottery winnings, such as the 1040-EZ.
Complete all of your personal information on the form. Also, report your other income, such as wages, interest or dividends. Enter the amount of your lottery winnings on line 21 of the 1040 as specified on form W-2G. If you are receiving annual payouts, the amount will reflect what you got in a single year, not your total winnings.
Enter the amount withheld from your winnings on your 1040 form. This number is shown on your W-2G. This lets the IRS know that you have already paid the taxes on your winnings.
Sign the form and send it to your local IRS center for processing. Include the W-2G form as well as any other applicable supporting data.
Things You Will Need
- W-2G forms
- Record or winnings not reported on W-2G
- IRS 1040 form
- Even if you don’t have money withheld from your winnings, you may have to pay an estimated tax before your money is disbursed. Depending on your situation, you might get some of that money back when you file taxes or you may end up owing more.
- If you have lottery winnings of between $600.00 and $5,000, you will receive a W-2G form but not have any money withheld for taxes. This will count as income for the year so be sure to save enough money to pay the extra income tax.
- Many states such as Arkansas, Oregon and Kentucky tax lottery winnings. This adds to your tax debt and is in addition to any federal taxes due. Check with your state tax board to find out the rules in your state. If you have to file, the tax board can tell you which forms to use.
- If you win over $5,000 in the lottery, the state government will withhold 25 percent of the money for taxes. If your state taxes gambling income an extra amount equal to your state income tax rate – such as 5 percent, 7 percent or 10.8 percent – will also be held back. The check you get will be for the amount that remains after taxes.
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