You just won the Lottery. Your thoughts quickly go to what you will buy, what trips you will take, and maybe even if you can retire. Before you start spending those winnings, remember to save some for taxes.
Yes, lottery winnings are taxable at both the federal and state level – if your state has a local income tax. In Massachusetts, winnings from gambling and or wagering are considered income and are taxed as state income tax.
Massachusetts Tax Rules
There are no special exemptions in the state income tax rules when it comes to winning the lottery.
State Tax – If you won more than $600 from the state lottery or from other gambling, you will be taxed at 5% on the payout. You will receive Form W-2G from the Massachusetts State Lottery Commission.
Federal Tax – On winnings of more than $5,000, the lottery commission will produced a withholding statement and withhold 25% of the total winnings and send it to the IRS (Internal Revenue Service) as federal income tax.
Past Due Taxes/Child Support – If you owe past-due taxes or child support, your winnings will go to cover those obligations. Under this circumstance, the lottery commission will notify the state Department of Revenue or the Child Support Enforcement Division with your name, address and Social Security number. The lottery commission will deduct the amount owed from the winnings and send it to the respective agencies.
Out of State Winners – A non-Massachusetts resident who wins the lottery must file a Massachusetts state income tax return that indicates no tax is owed. However, the non-resident must file a return in their own state reporting the winnings if that person’s state has an income tax.
Reporting Losses – The state does not allow deductions for losses when it comes to the lottery or gambling since they can be claimed as itemized deductions on the federal income tax form, Schedule A. When reporting your net winnings on the Massachusetts state income tax form, you can deduct the cost of the ticket.
Pay Out Priorities
According to the state Department of Revenue (DOR), the lottery prioritizes winning pay outs in the following manner:
- The full or partial amount of the prize to satisfy any past-due child support obligation
- The full or partial amount of the prize to satisfy any past-due tax liability
- The rest of the prize (after liabilities have been paid) goes to you
The DOR routinely verifies the information you report on your state income tax form to those supplied from the Lottery Commission.
We at SKB Law have represented dozens of lottery winners. Contact us so we can help your dream come true and that it won’t turn into a nightmare.