It must be awesome to win something substantial and valuable. I would want to, if I get lucky. All I need is a $1 to win the Mega Million if it’s my lucky day. Or how about walking away with the car of your dreams? But after winning big, what’s next?
Well, Uncle Sam will be right by the next corner, waiting to claim his share. Here are some facts that one should take note of:
1. On lotteries, they will withhold 25 % for taxes when one wins over $5,000. A W-2G form will also be sent out to you and the IRS as well. There is no tax withheld on any amount won less than $5,000, but it has to be declared as income on one’s tax return.
2. Gifts – Recipients don’t pay tax on any cash gift or valuables. Neither does the giver, for as long as the total gift value is not more than $11,000 per year per person.
3. Gambling – If you win a huge amount of money, it’s very rarely that taxes will be deducted by casinos outright. They will file the W-2G form to report one’s winnings to the IRS. On one’s tax return though, it has to be declared.
4. Contests – Any prizes from raffles, drawings are taxed as income based on the fair market value of the item won. The sponsors of the contest should send the IRS a 1099 form with the value of one’s winnings if it’s worth more than $600. Anything less, the winner is still required to declare the prize.