Federal Tax Withholding – The IRS automatically withholds 24% of your winnings before you even receive the money.
Top Federal Tax Rate – If your winnings push you into the highest tax bracket, you may owe up to 37% in federal taxes.
Lump Sum vs. Annuity Tax Differences – A lump sum is taxed all at once, potentially putting you in the highest tax bracket, while an annuity spreads the tax burden over years.
State Taxes Vary – Some states, like California, don’t tax lottery winnings, while others, like New York, take over 10%.
Local Taxes May Apply – Cities or municipalities may also impose taxes, further reducing your prize.
Deductions and Credits Won't Help Much – Large winnings limit eligibility for many tax deductions and credits.
Gift and Estate Tax Considerations – If you plan to share your winnings, you may face gift taxes on amounts exceeding $18,000 per recipient (as of 2024).
Investment Earnings Are Also Taxed – Any money earned from investing your winnings will be subject to capital gains taxes.
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