Taxes On Table Game Winnings

Taxes On Winning Lottery
Taxes On Table Game Winnings Table

Share

Before you see a dollar of lottery winnings, the IRS will take 25%. Up to an additional 13% could be withheld in state and local taxes, depending on where you live. Still, you’ll probably owe more when taxes are due, since the top federal tax rate is 37%. So the best first step lottery winners can take is to hire a financial advisor who can help with tax and investment strategies. Read on for more about how taxes on lottery winnings work and what the smart money would do.

Slot machines: A record of the machine number and all winnings by date and time the machine was played; Table games (blackjack, craps, poker, baccarat, roulette, or wheel of fortune): The number of the table. Winning these amounts will guarantee that the establishment gives you a form W-2G. With the W-2Gs and your form 1040, you are ready to report your gambling winnings and deduct your losses. Some table games will not cause the establishment to automatically give you the form though, so be prepared to keep your own records! Deducting Your Losses.

How Are Lottery Winnings Taxed?

The IRS considers net lottery winnings ordinary taxable income. So after subtracting the cost of your ticket, you will owe federal income taxes on what remains. How much exactly depends on your tax bracket, which is based on your winnings and other sources of income, so the IRS withholds only 25%. You’ll owe the rest when you file your taxes in April.

The Trump Tax Plan dropped the highest tax bracket rate from 39% to 37%, so recent winners (and high earners) have caught a small break. You can find your bracket on the table below.

2018 – 2019 Tax Brackets
Single Filers	Married Filing Jointly	Tax Rate
$0 – $9,525	$0 – $19,050	10%
$9,526 – $38,700	$19,051 – $77,400	12%
$38,701 – $82,500	$77,401 – $165,000	22%
$82,501 – $157,500	$165,001 – $315,000	24%
$157,501 – $200,000	$315,001 – $400,000	32%
$200,001 – $500,000	$400,001 – $600,000	35%
$500,001+	$600,001+	37%

On the bright side, if you’re in the top bracket, you don’t actually pay 37% on all your income. Federal income tax is progressive. As a single filer and after deductions, you pay:

10% on the first $9,700 you earn
12% on the next $29,775
22% on the next $44,725
24% on the next $76,525
32% on the next $43,375
35% on the next $306,200
37% on any amount more than $510,300

In other words, say you make $40,000 a year and you won $100,000 in the lottery. That raises your total ordinary taxable income to $140,000, with $25,000 withheld from your winnings for federal taxes. As you can see from the table above, your winning lottery ticket bumped you up from the 22% marginal tax rate to the 24% rate (assuming you are a single filer and, for simplicity’s sake here, had no deductions).

But that doesn’t mean you pay a 24% tax on the entire $140,000. You pay that rate on only the portion of your income that surpasses $84,200. In this case, that’s on $55,800. Your total tax bill would be $970 (10% of $9,700) + $3,573 (12% of $29,775) + $9,839.50 (22% of $44,725) + $13,392 (24% of 55,800) = $27,774.50. Usually, your employer would have withheld federal taxes from your paycheck, but if for some reason your employer didn’t, you would still owe $2,774.50 in federal taxes ($27,774.50 – $25,000).

Of course, if you were already in the 37% tax bracket when you win the lottery, you would have to pay the top marginal rate on all your prize money.

But these rules apply only to federal income tax. Your city and state may want a cut, too.

How Are Lottery Winnings Taxed by State?

Come tax time, some states will also take a piece of your lottery winnings. How large a piece depends on where you live. The Big Apple takes the biggest bite, at up to 13%. That’s because New York State’s income tax can be as high as 8.82%, and New York City levies one up to 3.876%. Yonkers taxes a leaner 1.477%. If you live almost anywhere else in New York State, though, you’d be looking at only 8.82% in state taxes, tops.

Of states that have an income tax, rates can span from about 2.9% to 8.82%. Nine states, however, don’t levy a state income tax. They are:

Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming

If you live in one state and buy a ticket in another, typically the state where the ticket was bought (and the prize paid) will withhold its taxes at its rate. You will have to sort out how much you actually owe to your state at tax time (you will receive a credit for the amount already withheld–and the states will sort out who gets what between them).

These examples reflect possible outcomes from taking your winnings as a lump sum. In most cases, however, your options include taking your earnings as a series of monthly payments.

Should I Take a Lump Sum or Annuity Lottery Payments?

The answer depends on your preferences. Most financial advisors recommend you take a lump sum, because it allows you to receive a larger return if you invest it in growth-oriented assets such as stocks. You may also want all the money to be able to buy a big-ticket item like a car, house or island, if your winnings are large enough.

Winners of small jackpots, though, may want to receive their winnings in annual or monthly payments, especially if it means they’ll owe less in taxes. Or they may prefer the steady stream of cash to ensure they don’t make the common mistake of blowing through all or most of their winnings. If you do take the annual or monthly payments, you should still work with an advisor on how to best use that money stream. For example, you’d probably want to prioritize contributing to your retirement savings account. If you don’t have one, winning the lottery may be a golden opportunity to open an individual retirement account (IRA) or Roth IRA.

In any event, you’d want to stash some cash for emergencies, taxes and other expenses down the road. Below, we provide links to reports on the best savings accounts, certificates of deposit (CDs) and investing vehicles:

How to Minimize Your Tax Burden After You Win the Lottery

Taxes on lottery winnings are unavoidable, but there are steps you can take to minimize the hit. As mentioned earlier, if your award is small enough, taking it in installments over 30 years could lower your tax liability by keeping you in a lower bracket.

Also, you could donate to your favorite non-profit organizations. This move allows you to take advantage of certain itemized deductions, which, depending on your situation, could bring you into a lower tax bracket.

Additionally, if you are sharing your good fortune with family and friends, you’ll want to avoid paying a gift tax. You can gift up to $15,000 per year per person without owing a gift tax. If you go over the limit, you probably still won’t owe tax, since the Tax Cuts and Jobs Act raised the lifetime gift and estate tax exclusion to about $11.4 million for single filers ($22.8 million for married couples filing jointly). Any amounts over the $15,000 per year per individual will count toward the lifetime exclusion.

If you anticipate coming close to the limit, though, remember that direct payments to colleges and universities don’t count as gifts; neither do direct payments to medical institutions. Also, if you are married, each of you can contribute $15,000 to a person, so that is $30,000 per year that is gift-tax free. Also, if the recipient is married, you and your spouse can give the spouse $15,000 each, which means you can give a total $60,000 to a couple, gift-tax free.

What to Do After Winning the Lottery

Winning the lottery, especially if it’s a large sum, can be a life-altering event for some. What you do next can put you on the path to financial wellness for the rest of your life. Or it can put you on the roller coaster ride of your life that leaves you broke.

Perhaps the best thing to do with your winnings at first is nothing. Take time to figure out how this windfall affects your financial situation. Calculate your tax liability with an accountant and earmark at least what it will take to cover the tax bill. Then comes the fun part: creating a blueprint of how you’re going to manage the rest of the cash.

But don’t go it alone. Work with a qualified financial advisor who can help you preserve and grow the money. After all, no matter how large your winnings are, they aren’t infinite. So making smart investments is key to your having enough money for the rest of your life.

Tips on Finding the Right Financial Advisor

Use SmartAsset’s pro matching tool. After you answer a few questions about your financial situation in about five minutes, the tool links you with up to three financial advisors in your area. You can then review their profiles or set up interviews before deciding to work with one.
Ask advisors about their certifications. In addition to telling you about the advisor’s training, these designations inform you about the advisor’s standards. For example, a certified financial planner (CFP) is bound by the fiduciary duty to provide advice in the client’s best interest at all times. Read our story to learn more about the top financial certifications.

Photo credit: ©iStock.com/SIphotography, ©iStock.com/imagedepotpro, ©iStock.com/SIphotography

Martin Harris

After two exciting weeks, the 2019 World Series of Poker Main Event is over, and Hossein Ensan of Germany now stands as poker's latest Main Event champion after topping the field of 8,569 to claim the $10 million first prize.

Dario Sammartino of Italy took second for $6 million, Alex Livingston finished third to win a $4 million prize, and each of those making the final table earned at least $1 million for having done so.

Or did they?

As he does each year, federally licensed tax professional, poker player, and writer Russ Fox has shared with the poker world his annual look at the tax obligations faced by each of the nine players who made the WSOP Main Event final table. As Fox has shown before, when we say a player has won a certain, eye-popping amount for winning the Main or making the final table, the player's actual profit is often something less than the reported total thanks to having to pay income tax on the winnings.

In his article 'Location, Location, Location: The Real Winners of the 2019 World Series of Poker,' Fox looks at how the nine players' nationalities will affect their respective tax burdens, showing how almost all of them will be giving up a significant percentage of their winnings. In fact, when added up the total amount taken out of the nine players' prizes will exceed (once again) even the first-place prize.

We've been reporting on Ensan here at PokerNews for a long time, and indeed ever since we've known him he's always said he considers himself an amateur player (see, for example, this profile of Ensan from a European Poker Tour final table five years ago). Ensan again has reiterated his status as an amateur player in interviews both before and after his win this week.

While Ensan saying so fits well with his overall humble and amiable personality, Fox points out how in Germany his status as a professional or amateur is important when it comes to determining his tax obligation. A federal law passed in Germany two years ago 'ruled that professional gamblers must pay income tax on their net gambling winnings (less expenses),' and that 'amateur gamblers do not have to pay income tax on gambling winnings.'

As Fox explains, if Ensan does have to pay tax on his $10 million prize, he will owe more than $4.6 million in taxes to the Bundeszentralamt für Steuern, Germany's Federal Central Tax Office.

Among the other eight players, only seventh-place finisher Nick Marchington escapes having to pay tax on his $1.525 million prize since the United Kingdom does not tax gambling winnings. (This is one reason, Fox notes, why many German poker pros have taken up residence in the UK.)

Meanwhile, each of the others will be paying taxes, in most cases to their home countries and in the U.S. to home states as well. The Canadian Livingston will not have to pay tax in Canada on his winnings but will owe 30 percent of his $4 million prize to the US due to a tax treaty between the two countries.

Fox explains as well how ninth-place finisher Milos Skrbic would have been taxed differently if he lived in his native Serbia, but he currently lives in California. In either case, though, Skrbic would owe a great burden — calculating it as a California resident shows he will owe the most of all the players, percentage-wise (about 47.4 percent), when it comes to paying taxes on his $1 million prize.

Here is how all of those figures break down for the nine players making the final table:

Position	Player	Prize	Tax Owed	Prize After Taxes
1st	Hossein Ensan	$10,000,000	$4,606,469	$5,393,531
2nd	Dario Sammartino	$6,000,000	$2,572,350	$3,427,650
3rd	Alex Livingston	$4,000,000	$1,200,000	$2,800,000
4th	Garry Gates	$3,000,000	$1,050,813	$1,949,187
5th	Kevin Maahs	$2,200,000	$870,729	$1,329,271
6th	Zhen Cai	$1,850,000	$706,679	$1,143,321
7th	Nick Marchington	$1,525,000	$0	$1,525,000
8th	Timothy Su	$1,250,000	$491,150	$758,850
9th	Milos Skrbic	$1,000,000	$474,463	$525,537

If Ensan does have to pay taxes on his winnings, the total collected from all of the players adds up to $11,972,653 taken out of the $30,825,000 in prizes for the top nine finishes. That's just under 39 percent, and even more than the $10M first-place prize.

Taxes On Winning Lottery

For further details from Fox’s analysis, check out his article.