What Is the Tax on Lotto Winnings in California?

Lotto winners in the Golden State are on the hook for federal taxes.

Lotto winners in the Golden State are on the hook for federal taxes.

California Lotto jackpot winners may be blessed by the luck of the draw, but to Uncle Sam, they're mere mortals liable for tax payments. This means that whether you're cashing in on a one-time lump sum or 26 annual installments, your tax dollars will have already been withheld -- such, as they say, is luck.

State Taxes

California lottery winners can breathe easy -- at least as far as state taxation is concerned. Their winnings are exempt from California state and personal income taxes. However, this isn't the end of the story. The California Lottery will have to withhold a certain percentage for the federal portion of a winner's tax liability.

Federal Withholding Tax

The California Lottery winner's handbook discusses how the federal taxes break down. American citizens and resident aliens pay 25 percent. That goes up to 30 percent for people who don't specify their citizenship. There could be additional taxes, depending on the winner's financial status. If, for example, you have outstanding debts, your creditors may impose judgment liens, offsets or tax levies against your winnings. These will be deducted from your payout and may continue into future years until the debt is paid.

Group Tax Liability

If you pooled your cash with a group of fewer than 100 members for Scratchers annuity, SuperLotto Plus or Mega Millions, you can get your tax-withheld winnings as individuals. You will all have to choose the same payment option. The feds will take their cut before you get your payout. To get your piece of the pie, each member should fill out the Multiple Player Ownership Claim form.

Designated Distributor

For all other lotteries, your group has to pick someone who'll dish out the winnings to everyone else. That person should ensure each winner fills out a Tax Form 5754 from the IRS, which must be done to determine the taxes due from each portion. The California Lottery has to get the form by December 31 of the year of the payout. In return, you'll get a W2-G form to file with your next federal tax return.

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