Page 21 - January 2013 • Southern California Gaming Guide

Winning The Big One: What Will it Cost?
by Gail Anders
We all dream of winning e Big One: a big casino jackpot, or even a new luxury car. And what about the payload of everyone’s fantasies—the lottery? Will it cost to keep one of these dreams? You know it will.
up pushing most audience members into a higher tax bracket, costing them as much as $7,000 in
taxes.
Of course, if you
can receive a cash settlement instead of the
car, you won’t have any problems paying the
tax that’s due.
The Lottery
When you win the lottery, you’ll have to decide whether to take the payment as a lump sum or an annuity. You may want to consult with a tax attorney or certi ed public accountant (CPA) and discuss the nancial implications of
each choice before deciding. Depending on your state of residence, your tax could be as high as 50% based on your
other income and winnings. As with wage income, some amount of lottery winnings is withheld for the government before you calculate your total tax bill when ling your income tax the following year. While lottery winnings of $600 or less are not reported to the IRS, winnings in excess of $5,000 are subject to a 25% federal withholding tax. In other words, if one person wins a $400 million lottery and chooses the lump sum payment, $100 million will go straight to the IRS. e following April, the jackpot winner can see if any of that amount gets refunded, or if
they owe even more.
e same is true at the state level. While lottery
winnings are subject to state income tax in most states, withholding tax varies from zero in California, Delaware, Pennsylvania, and the states with no state income tax; to over 12% if you live in New York City. Arizona and Maryland have withholding rates for non-residents, so an out-of-state winner who bought a lottery ticket in one of those two states could face double withholding.
Remember that you are responsible for paying taxes on your casino jackpot, your new luxury car and the lottery. Don’t you wish you had this problem?
Many people don’t realize that some prizes aren’t entirely free. Taxes and the subsequent costs of ownership can turn elation into frustration. Here are some prizes we’d all like to win and how much it will cost to keep them.
The Big One: A Big Casino Jackpot
Anyone who’s won $1,200 or more in a casino knows Uncle Sam wants some of your casino winnings, and will indeed get some. e IRS considers jackpots or prizes won at casinos gambling income. If your win is high enough, you may have to pay an estimated tax at the time you receive the prize. e casino or company awarding the jackpot, including a slot maker whose huge progressive you may have won, may also withhold money and send it to the IRS on your behalf. e casinos are not required to take out withholding tax on jackpots under $5,000 as long you supply your Social Security Number. If you don’t provide it, the casino may withhold 25% on smaller jackpots.
e withholding rate on casino jackpots for non- residentaliensis30%.So,ifacitizenofaforeigncountry wins $1 million cash at a slot machine, she will nd she will be paid only $700,000. e remaining $300,000 is sent to the IRS. e foreign citizen is unlikely to ever le an income tax return, but the IRS gets paid in
full anyway. Lucky Uncle Sam! You can request a speci c
amount of withholding tax to be taken out on any jackpot you win. Some players
do this to avoid a big
tax payment in April when they le their income tax returns.
But because
the taxes on any
money you win
from gambling
can be o set
by any money you
have lost, make sure
to keep gambling records — it can pay o big. Keep a gambling log of what, where, and when you play; and how much you win or lose. And you’ll get the deduction only if you itemize your taxes rather than
taking the standard deduction.
How much you are taxed depends
upon your income and the state you
live in. However, gure on giving up almost half of your winnings to the IRS.
Note that some big slot progressive jackpots are paid in annuities, where you receive an annual amount of the win
for a stipulated number of years. ere
are, however, companies that purchase these annuities, but you will probably lose a chunk of your winnings in the process.
Luxury Car
If you win a new car, you’ll be responsible for federal and state income tax bills based on the value of the vehicle. Unless, like some Southern California casinos, the car’s taxes
are part of the prize. Generally, the prize-payer will reduce your payout
by withholding federal taxes at the
25% rate. Often, when the prize non-cash, like a car, the fair market value becomes the taxable amount.
After the excitement wears o , start considering where you’re going to get the 25% of the prize value to pay the taxes. You’ll also have to pay registration
and licensing fees. Vehicles given away at casinos are often luxury cars, which can mean the income tax is as pricey
as a more modest new car. Plus, there are the ongoing costs of maintaining a luxury car,
including higher insurance and, not to mention, maintaining
the car’s appearance.
Several years ago,
you may remember Oprah Winfrey gave her audience members a new Pontiac G6. e sticker price of the car was $28,500, and that was the amount to be claimed for tax purposes. e “free” car ended
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JANUARY 2013
SOUTHERN CALIFORNIA GAMING GUIDE
PAGE 21