Most people who gamble probably dream of winning the lottery someday. But how many of them think about the tax implications? Unfortunately, one must think of taxes. As Benjamin Franklin famously stated, “…but, in this world, nothing is certain except death and taxes.”
Therefore, you need to prepare to pay for your fair share. In Massachusetts, lottery winnings don’t just attract federal income taxes, but state taxes as well. So, it would be best to include the Massachusetts lottery tax percentage and learn how to file state taxes if you won the lottery.
Read More: How to Cash in a Winning Lottery Ticket
Lottery Winning Taxation at Federal Level
Regardless of which state you are in when you win the lottery, the lottery organizers are legally obligated to withhold 24 percent of winnings worth $5,000 or more on behalf of the IRS. The monies will go toward federal lottery income taxes. But winnings of $600 or less don’t need to be reported.
When filing federal taxes for lottery winnings in Massachusetts, you would need to obtain Form W-2G, Certain Gambling Winnings from the lottery agencies to report the extra income and the federal taxes that have been withheld.
You will then report the winnings in Form 1040, as “other income” on line 8. And you can also use the figures from line 10 in Schedule 1 of Form 1040 to obtain the final other income values for your individual tax return.
However, if you are a foreigner according to U.S. migration law, 30 percent of your gambling winnings will be withheld. And in such a case, the income must be reported on Form 1042 and Form 1042-S.
It is worth noting that the 24 percent withholding rate may not be your highest rate. If your lottery winnings push your income to the highest income brackets, you could end up paying as much as 37 percent taxes on your overall income.
Tax on Lottery Winnings by State
While federal taxes on lottery winnings are mandatory, the same cannot be said of taxes at state level. Some states don’t tax lottery winnings, while some do. Even then, the taxation rates vary widely. Therefore, don’t be surprised to see a difference between the values on a Massachusetts lottery tax form and those from other states.
About nine states don’t tax income. These include Wyoming, Alaska, Florida, Texas, Nevada, New Hampshire, Tennessee, South Dakota and Washington. Therefore, you will not pay any taxes on lottery income if lived there.
Other states, such as Utah and Nevada don’t have lotteries. In such locations, taxes on lottery winnings don’t apply.
In California and Delaware, your lottery winnings will not be subject to taxes even though the states have state income taxes. However, if you live in Massachusetts but bought your lottery ticket in Arizona or Maryland, the states will tax you at a rate of six and eight percent respectively.
But if you bought your ticket in Massachusetts and live within the state, expect a Mass lottery tax withholding rate of five percent.
Filing Taxes for Massachusetts Lottery Winnings
In addition to filing federal income tax returns, you must also file a state return for Massachusetts to report your winnings. You will have to ensure the five percent state withholding rate has been accounted for. And if you got your winning ticket in Arizona or Maryland, ensure you complete their state income tax forms also, if the necessity arises.
As a Massachusetts resident, you may need to file Form 1 Massachusetts Resident Income Tax Return and include your state lottery winnings on line 8b. In addition, you may also have to fill Schedule X Other Income to account for gambling winnings from sources other than the state lottery.
You will also include the Massachusetts lottery tax deductions within the same form, depending on which lottery you participated in.
Read More: How to Claim Lottery Money
It is important to be careful when calculating taxes on lottery winnings in Massachusetts. That way, you won’t owe the IRS or the state money. If you have no idea how to go about it, consider using taxes on lottery winnings calculators.
A Massachusetts lottery tax calculator may give you a more accurate value of what you owe or should get back as a refund at state level, depending on your overall income and withheld amounts.
- ConstitutionCenter.Org: Benjamin Franklin’s last great quote and the Constitution
- IRS.Gov: Instructions for Forms W-2G and 5754 (01/2021)
- IRS.Gov: GAMBLING INCOME AND EXPENSES
- AARP.Org: 9 States That Don't Have an Income Tax
- World Population Review: Taxes On Lottery Winnings by State 2022
- Arizona Lottery: Brochure
- Maryland Lottery: How to Claim
I hold a BS in Computer Science and have been a freelance writer since 2011. When I am not writing, I enjoy reading, watching cooking and lifestyle shows, and fantasizing about world travels.