Tips & Strategies

Taxation when winning a lottery. How much should you give to the state?

Taxation when winning a lottery

One morning on the way home from work, John saw an enormous banner: "Powerball will draw $ 600 million!" "Incredible!" — John thought. "It's more than half a billion US dollars It’s not the largest Powerball Jackpot, but still. I'll buy a yacht, a mansion, a helicopter, whatever... Then I’ll still have a lot of money and I..." Oh, you better stop or else, John! You are right in only one thing: after winning the lottery, you really will have a lot of money. However, you were also mistaken: you will receive much less than half a billion dollars.

First, after winning Powerball you will be offered two options for getting the prize: you’ll be able to either get the Jackpot in equal parts within 30 years or get a lump sum. The snag is that by choosing the second option, you’ll only get about 60 percent of the initial winnings. So, you’ll give 40% of the Jackpot back to the state. After the deduction, you still will have about 360 million. Next, we have to pay taxes. Let's see how much money you have to retain to America to collect your money.

Taxation of the American lotteries

American taxation is very complicated. If you ask the question to your lottery agent "How much tax will I pay if I win the American lottery?" and he isn’t able in a short time to answer you something definite, don’t consider him incompetent. The fact is that the amount of tax depends on the country of your residence, as well as on the state where the ticket was purchased.

The amount that a player retains to the state depends on whether he is an American citizen or not. So, for example, American residents pay 25% of the Jackpot amount, whereas foreign citizens have to part with 30% of the prize.

If you’re reading this article, then, most likely, you are not a resident of the US, because Americans are perfectly familiar with their own taxation. Hence, we will have to part with another 30% of the winnings. Total we now have $ 252.000.000. No panic! It's still more than you could have earned in 100 or even 1000 years.

However, it's too early to relax. In America, you need to pay not only general federal tax, but also additional state tax. Here is the list of tax deductions from the largest to the smallest:

Tax Rate Country

8,82%

New York

8,75%

Maryland (however if you are not a resident of this state, the tax will be 7,5%)

8,5%

Washington, D.C.

8%

New Jersey, Oregon

7,65%

Wisconsin

7,4%

Idaho

7,25%

Minnesota

7%

Arkansas, South Carolina

6,99%

Connecticut

6,9%

Montana

6,5%

West Virginia

6%

Georgia, Kentucky, New Mexico, Vermouth

5,99%

Rhode Island

5,499%

North Carolina

5%

Arizona, Iowa, Kansas, Louisiana, Maine, Massachusetts, Nebraska

4,95%

Illinois

4,25%

Michigan

4%

Colorado, Missouri, Ohio, Oklahoma, Virginia

3,4%

Indiana

3,07%

Pennsylvania

2,9%

North Dakota

0%

California, Delaware, Florida, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wyoming

It turns out, it's more profitable to buy lottery tickets in the last 10 states. These states have their own lotteries. For example, you can play California SuperLotto Plus or Lotto Texas. You can do this even when you are in another country online.

Most likely, you want to buy a lottery ticket in New York. You’ll see the skyscrapers of Manhattan, you’ll inhale the spirit of money on Wall Street and you’ll certainly want to get rich. Well, get ready to part with 8.82% of your winnings.

As a result, your bank account will be replenished by $ 229.773.600. This is less than 40% of the original amount. But, my dear friend, even with all these taxes and deductions, American lotteries offer the largest Jackpots in the world.

Let's count how much money Mavis Wanczyk, who won the largest Powerball Jackpot of $ 758.700.000, actually got. Exactly speaking, the largest ever Powerball Jackpot was 1,5 billion dollars, but it was shared between three winners. Mavis is the largest single powerball winner and the person who got the largest Powerball payout to a sole player. Mavis decided to pick a lump some, so she got $ 480.000.000 minus 25% of the federal tax and 5% of the state tax. Her total prize payout was $ 336 million after taxes. Still impressive!

Powerball winner Mavis Wanczyk, one of the richest women in the world

Taxation in other countries

We’ve tackled with the most complicated tax system in the world. All that is left to do is to get a sense of taxation systems of other countries. The European lotteries can be divided into three groups: 1) you don’t need to pay tax, 2) you need to pay tax, 3) the amount of tax depends on the country in which the ticket was bought.

You don’t have to pay tax for lotteries from...

Strictly speaking, Brazil levies tax on winnings, but it is deducted from the Jackpot amount before it is declared.

  • Germany (Germany Lotto)
  • Austria (Austria Lotto)
  • France (France Loto)
  • Hungary (Hatoslotto, Otoslotto)
  • Ireland (Ireland Lotto)
  • New Zealand (New Zealand Powerball)
  • South Africa (South Africa Lotto, South Africa Powerball)

You have to pay tax for lotteries from...

Country Lottery Tax amount

Italy

SuperEnalotto, SuperEnalotto Superstar, SiVinceTutto

The tax is levied on winnings bigger than 100 euros. The tax increases along with the amount of the winnings and can reach 12%. The tax is levied only on the difference between the amount of the winnings and the minimum amount not taxed in this tax category. Besides, the agent's tax is charged (up to € 6.20) from a sum of the prize.

Spain

El Gordo, La Primitiva, Bonoloto, Lotería Nacional

The tax is levied on the amount more than € 2.500. The tax rate is 20%. Foreigners can claim a return of the tax amount in order to pay that in their home country. Tax is levied on the difference between the winning amount and € 2.500.

Also, taxes are levied on lotteries from Chile (17%), Colombia (up to 20%), Mexico (7%), Latvia (up to 31.4%), Poland (10%), Romania (up to 25%), Ukraine (17 %) and Switzerland (35%).

The tax depends on the country, if you play…

  • EuroMillions (tickets can be purchased in the UK, France, Spain, Austria, Belgium, Ireland, Luxembourg, Portugal and Switzerland).
  • EuroJackpot (tickets can be purchased in Croatia, Czech Republic, Denmark, Estonia, Finland, Germany, Hungary, Iceland, Italy, Latvia, Lithuania, the Netherlands, Norway, Slovakia, Slovenia, Spain, Sweden and Poland).

These are pan-European lotteries. Clarify the taxation in each country to understand how much money you will retain for the state.

Let's analyze a few more essential questions:

  • What was largest Powerball Jackpot tax?
    The US Powerball largest Jackpot was 1.5 billion. Now you know how to calculate taxes, so that you can calculate the approximate amount of deduction yourself.
  • How can I pay the tax?
    Don’t worry, the tax is deducted before the Jackpot is paid to the winner. You have already been taken care of.
  • Do I need to pay tax in my home country?
    Many countries have concluded a treaty on the absence of double taxation. Most likely, you don’t have to pay lottery tax in your home country. But it is NECESSARY to consult your lawyer about this. Just in case.
  • Are these the final taxes and fees?
    You may need to pay extra taxes and fees. Every single winning case is considered individually. We recommend that you use the services of lawyers and financial advisers to competently fulfill your obligations and not be fooled. Do not forget that some goods that you will purchase after winning, for example, real estate or luxury goods, can also be taxed. Many winners bought a lot of houses and cars, but then had to sell them out to cover tax collections. Be prudent and financially literate.

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