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Federal Taxes on Your Lottery Winnings
Larry Denton
Many lottery winners are astonished when they find out that lottery winnings are paid out over yearly installments of 20 or 25 years. They are even more astounded when they realize that the Internal Revenue Service withholds 28 percent for federal income tax from each check. As an example, if you won $2,000,000, most states would pay you $100,000 a year for 20 years, minus the 28 percent federal withholding tax, giving you a yearly income of $36,000.
On top of that, you may also have to pay additional income taxes when you file your yearly tax return since the additional $36,000 of income may place you in a higher tax bracket. Since there are no cost-of-living increases with lottery winnings, that $36,000 you get the first year will only be worth $11,200 in purchasing power 20 years from now thanks to rising inflation.
Taxes on lottery winnings are unavoidable. However, with all the investment opportunities available today, it makes common sense to get a lump sum upon winning the lottery and build it for the future. Good Luck!
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