Income Taxes

What percentage of tax do you have to pay on a large lottery win?

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February 27, 2009 4:16PM

Depending on your other income and the amount of your winnings, your federal tax bracket can go as high as 39.6%. Your lottery winnings might also be subject to state income tax. So depending on where you live, your total tax bill could exceed 50%. You don't get any capital gains rate break for lottery winnings, nor is there any income averaging to help lower your tax bill. If you win more than $5,000 in the lottery, 28% must be withheld from your winnings for federal income tax purposes. You can do a google search 'taxes on lottery' to get more info specific to your situation. 0% in Canada! YES

In US it would all be taxable as ordinary, that is any other income, and effectively be taxed at whatever your personal rate ends up being. That means it is taxed like any other income (albeit not subject to FICA). Many have tried to call it a capital gain or investment gain, but that has always lost in court. If you are a professional gambler, there may be other considerations. This is actually a very well decided area of tax law everywhere.

(Remember Oprah audience...the entire value of the cars they were given was taxable...in fact the money they were then given to pay the tax on it was taxable). You do not have to declare winnings as income in Australia either. So because it is not classed as income no tax is paid on it.