Taxes On Lottery Winnings

Lottery Jackpot Winners: Reclaim Taxes On Your Lottery Winnings

Is There A Strategy For Powerball Winnings, Mega Millions Winnings, Or Any Other Form Of Lottery?

Lots of so-called experts, psychics, etc., promise to give you higher odds of winnings the lottery. Unfortunately, most of their advice does not work. If they could change your odds of winning the lotto, they would most likely be looking on this website for advice on how to reclaim their tax on lottery winnings.

The most plausible strategy for Powerball winnings, Mega Millions winnings, and winnings for other similar lotteries, is to avoid the obvious number choices. Avoid picking a string of numbers like 1, 2, 3, 4, 5 and 6. While these choices have the same statistical chance of winning the lottery jackpot as the usual random number choices, there are many more lottery players who choose these former patterns. Thus, any jackpot with these sequences of winning lottery numbers will have to be split amongst many lottery winners.

How Are Lotto Winnings Taxed By The IRS?

The IRS taxes lottery winners at its highest marginal tax rates. If you have won $600 USD or more, the IRS taxes lottery winnings at a rate of 30%. Unlike Canada, whose 6/49 and Lotto Max winners enjoy their lottery winnings tax free, every significant US lottery jackpot is subject to withholding tax. Luckily, Canadian and overseas lottery winners can apply to have at least some of their lottery taxes refunded.

Why Do Canadian And Overseas Visitors Buy US Lottery Tickets?

Lots of U.S. visitors purchase lottery tickets in the hopes of getting lucky with Powerball winnings, Mega Millions winnings, and winnings of other large US lotteries. Both the Powerball and the Mega Millions lotteries draw from large populations in many states. Since these lotteries have many players, their jackpots can also rise to dizzying heights. In general, states either have the Powerball lottery or the Mega Millions lottery. Very few states offer both lotteries. Other multi-state lotteries include 2by2, Hot Lotto, and Wild Card 2.

Scratch and win lottos are another popular genre of lottery. Many of these have sports, humor, or holiday themes, and are inexpensive (just like most lotteries) to play. In addition, the scratch and win jackpot winner will immediately know if he or she has scratched the winning ticket.

Many visitors to the U.S. purchase lottery tickets because of circumstance, as lotteries are sold pretty much everywhere. Many Canadians who cross the border for less expensive gasoline may splurge on lottery tickets at gas stations. Numerous lotteries are available in almost every state, with the notable exceptions of Alabama, Alaska, Hawaii, Mississippi, Utah, Wyoming, and surprisingly, Nevada.

The prospect of large jackpots entices many Canadians and overseas visitors to indulge in American lotto purchases while in the US.

Can Overseas Lottery Winners Reclaim Their Taxable Lotto Winnings?

Contrary to what many believe, it is perfectly legal for non-Americans to purchase lottery tickets. If they are truly lucky, they can claim their American lottery jackpots and subsequently also reclaim parts of their tax on lottery winnings. The relationship between the IRS and overseas lottery winners is not very different from the relationship between the IRS and domestic lottery winners, at least when it comes to gambling winnings and the IRS' taxes.

One note of lottery advice: overseas lottery winners are often unaware of their lottery winnings. They may have purchased a winning ticket while in the US, but often forget to look up the subsequent lottery jackpot numbers after returning home. Non-Canadian lottery numbers are not published on Canadian TV and newspapers. If the winning lottery ticket holders fail to collect their lottery wins after a predetermined period of time, their jackpot is forfeited.

How Do You Calculate Tax On Lottery Winnings?

Unfortunately, like many other forms of gambling in the United States, there is tax on lottery winnings. A withholding tax of 30% is levied on all lottery jackpots of $600 USD and above. Lottery jackpot winners of $599.99 USD or less will receive the entire lottery jackpot amount. A $600 USD lottery win automatically will have $180 USD ($600 USD X 30% withholding tax) deducted from the lotto winnings. Since an overwhelming number of lottery jackpots exceed this threshold, most lotto winners are unable to take home their lottery winnings tax free and have 30% withholding tax withheld by the IRS.

Lottery winnings from a lottery run by an Indian tribal government in the US is subject to 30% withholding tax on the full amount (without the need to meet a specified threshold) for US non-residents.

Canadian winners who have been lucky enough to win one of the mega jackpots (such as Powerball winnings or Mega Millions winnings) are unlikely to significantly decrease the amount of tax withheld on their lotto jackpot. In order to receive a full American tax refund, you must have equal to or greater gambling losses than your lottery jackpot. Thus, getting a full tax refund from the IRS is unlikely as most people do not lose such a significant amount of money gambling in the United States in the same taxation year as the lottery win.

But, if you are like most lotto winners out there, and have had 30% taken off a $2000 USD or $5000 USD scratch and win jackpot, your gambling losses will allow you to reclaim all, or at least a significant portion of the jackpot taxes withheld by the IRS. Gambling losses in the US (from taxable games) are deductible against your lottery winnings. Even if your gambling losses do not cover the monetary amount of your lottery winnings, you could still be eligible for at least a partial refund.

If you are a Canadian who has been lucky enough to win a significant US lottery jackpot, you will have had 30% withholding tax deducted from your US lottery win. For the vast majority of these people, the lottery win is larger than their same-year US gambling losses. But you are still eligible to obtain a partial lottery tax refund. For example, if you have won $10,000 USD from a US lottery jackpot, $3000 USD (30% of $10,000 USD) will be automatically deducted as gambling winnings tax. But you also have $2000 USD of same-year US gambling losses. The $2000 USD of losses can be used to offset the $10,000 USD lottery winnings. The IRS is entitled to take only 30% of your net gambling winnings [($10,000 USD - $2000 USD) X 30% = $2400 USD]. Since you were originally taxed $3000 USD, you will receive a refund of $600 USD ($3000 USD subtract $2400 USD).  It's not insignificant.

Other overseas lottery winners from treaty countries can obtain a full tax refund of their withheld lottery taxes. There is no need to claim US gambling losses against taxable lotto winnings in order to receive a tax refund. International lottery winners from non-treaty countries will need to show their US gambling losses to claim either a partial or full gambling tax refund.

How Can U.S. Gambling Refund Help You Recover Your IRS Taxed Lottery Winnings?

Dealing with the IRS is notoriously difficult and complicated. Non-US residents attempting to reclaim their tax on lottery winnings face a few more obstacles that do not exist for US residents. US Gambling Refund can efficiently obtain a hassle-free tax refund from the US government. We are knowledgeable in both US and Canadian tax laws.

If you are a lottery winner in the U.S., and have 30% lotto taxes withheld, request a tax application package from us. We can help to recover your lottery taxes.