Lottery winnings valued at $600 or more after the cost of the ticket is deducted are reported to the Internal Revenue (IRS) on Form W-2G (which you'll receive a copy of as well). You must report this as income on your federal tax return. Under certain circumstances, you may need to pay federal tax, state and local taxes (depending on your state), back taxes and child support arrears.
Federal and State Tax
Before you receive any winnings from the lottery, money is deducted to pay federal, state and local taxes, if any, on the total amount of the winnings over what your state has set in place. For instance, Michigan and Wisconsin don’t withhold federal or state taxes on any winnings under $5,000. However, if your winnings are $5,000 or more, Michigan withholds 4.35 percent for state and 25 percent for federal tax. Although the lottery withholds this percentage of money, when you file your tax return at the end of the year, you may need to pay additional tax on the money depending on your total income and tax liability.
Federal and State Tax Arrears
Federal and state governments will place a tax lien against you if you owe any back taxes, even if you are paying on the arrears owed through payroll deduction or another way. This is called a tax lien intercept. When your name is on the list, any winnings from the lottery will bring up a flag for the lottery agency, alerting it the government has a tax lien on your winnings. The lottery agency will deduct the taxes from the winnings and send the remainder to the federal and state governments to pay off the tax arrears. If the amount of the lien is less than the amount of lottery winnings you have coming, you will receive the amount due after the tax liens are paid in full, unless you have other obligations that have a lien on your winnings.
Child Support Arrears
Child support arrears are deducted from your lottery winnings after all taxes and tax liens have been satisfied. Some states do have a minimum amount of winnings set forth before child support arrears can be collected. For instance, in Wisconsin, you must win at least $1,000 or more in the lottery before the child support agency will take any money for arrears. In Florida, the lottery winnings only need to be $600 or more.
Paying Child Support
When you win the lottery, the money is considered income that the child support agency can take a certain percentage of towards your child support obligation. For instance, if you win $10,000 and you have one child, the agency will take a percentage of that money to give to the legal guardian of your child. In Wisconsin, if you have one child, the percentage of your income that goes for the child support of one child is 17 percent. After you pay any liens put on the lottery winnings from government agencies, the remaining amount is subject to reduction for child support.
- Wisconsin Department of Children & Families: Intercepting State Tax Refunds, Lottery Winnings, State Vendor Payments
- Michigan Lottery: How to Claim Your Prize
- Florida Department of Revenue: Enforcement of Child Support Orders
- DC Lottery: FAQ-English
- USA Mega: Mega Millions Jackpot Analysis
- IRS: Instructions for Forms W-2G and 5754-Main Content
- IRS: Part 5. Collecting Process
- What Is a W-9 Tax Form?
- Income Taxes and Withholdings
- How Much Do I Save If I Change Tax Withholding?
- What Is State Withholding Tax?
- Setting Up Your Tax Withholdings
- IRC 457 Early Withdrawal Guidelines
- What Is the Amount of Tax Withholding on Cashing in an IRA?
- Must an Employer Withhold Federal Taxes on an Hourly Employee?
- Tax Withholding Single Vs. Married
- How to Adjust Withholding Exemptions for Tax Refunds