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Question about taxes on lottery winnings

 
 
Reply Sun 4 Aug, 2013 01:53 pm
Hello and good morning,
I have a fairly simple tax question regarding lottery winnings taxes that has turned out to be a bit confusing due to conflicting info from the IRS website vs the Oregon Lottery site.

OK so here it is in a nutshell I live in Oregon and I won a $4,000 Oregon Video lottery jackpot on a machine at the tavern.

So I drive to the Lottery Office in Salem to redeem the ticket and they congratulated me & blah blah paperwork blah paperwork and whatta ya' know I'm am out the door with a $4000.00 check just like that. Now I assumed they would withhold the taxes and make my life easy but they didn't withhold any state or federal taxes and I know damn well the IRS is gonna ask to get there cut of my prosperity so I want to plan ahead.

They did give me a Form W2-G and said I had to file it with my income tax return. I want to put the taxes I will owe in my savings account so I don't spend it and screw myself out of part of my tax refund later.

So my question is how much Federal tax will I owe on this $4000.00 and How much state taxes will I owe to Oregon.

Here are some figures about my income if you need them:
gross salary: $25,000 year + $4000.00 Jackpot
filing status: Single, Head of House hold
dependents: 1 (my son)
Tax Form: 1040

I have no special tax situations at all other than this $4000.00 winning I just don't know how to figure it out, the IRS site says 25% withholding on all gambling winnings and then the Oregon Lottery site says ?% based on total income and then turns around and says prizes over $5000.00 are taxed at 25% and are automatically withheld. So I am a little confused about how much to save since I don't know the percentage for the federal taxes on Oregon lottery winnings. Now I am assuming that the percentage for Oregon state is 8% but not sure. Please help this money is burning a hole in my pocket

Thank you
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Type: Question • Score: 5 • Views: 1,515 • Replies: 5
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chai2
 
  2  
Reply Sun 4 Aug, 2013 01:59 pm
Since you say the federal tax is 25% and Oregon 8%, why don't you just put $1300 (actually $1320) aside and call it good?

Worst that'll happen is you won't owe quite that much and that'll be pleasant.
You're still immediately ahead $2700.
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roger
 
  1  
Reply Sun 4 Aug, 2013 05:59 pm
@paradox78,
Watch out for the 90% pitfall. If you don't have payroll deductions and other prepayments that equal at least 90% of your tax liability, they can and probably will subject you to a penalty. You could also get stuck having to file quarterly returns in the future.
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TheFinanceWriter
 
  0  
Reply Mon 19 Aug, 2013 10:10 am
Based upon the information you provided, you do not owe any income tax for 2013. After subtracting the standard deduction for head of household filing status and the exemption for two individuals (you and your son), your income is less than the requirement for filing a tax return.

Have you had similar income in past years? If so, you had no tax liability. Is that right? You should know if you are paying any income tax every year. When you don't owe any tax, you don't need any withholding from your paychecks. Fortunately, the $4,000 of lottery winnings does not change your situation for 2013. Go ahead with your spending plans for the entire amount of extra cash.
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Linkat
 
  1  
Reply Mon 19 Aug, 2013 10:41 am
@paradox78,
It should be taxed at your regular income tax rate - you received this in a sense as income so it will be at the higher tax rate (not capital gains) - which in your case would be your income tax rate. As this amount (combined with your annual salary) would not be any where near enough to boost you into a higher tax bracket.

That being said you may get more back than the actual tax rate depending on how many deductions you have.

To be safe (and then this would be a bonus after you complete your taxes) - put aside enough as if you were going to be taxed on your federal and state (local if you have any) tax rates.

The reason they tax at 25% for $5,000 and above is similar to any sort of bonuses paid out at the workplace. They assume your winnings (or bonuses) could boost you into the next tax bracket so you tend to taxed higher for these sorts of things. Although my bonuses are always taxed at 42% - I get a good part of it back though when I file my returns. So this could be they take out 25% for the state only and not take out for federal since it is a state lottery (state wants to make sure it gets its money).

It is confusing all the tax rules, but considering your annual income and you have some deductions, you will be more than safe by saving aside your normal federal and state taxes.
TheFinanceWriter
 
  0  
Reply Mon 19 Aug, 2013 10:47 am
@Linkat,
Considering annual income, number of exemptions, and applicable standard deduction -- all of which paradox78 discloses for us -- her "normal federal and state taxes" on income are zero.
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