Winning the lottery may be the dream of millions of Americans. However, if you find yourself winning, this windfall can quickly become a nightmare. Winners have to contend with claiming the prize and the inevitable taxes, regardless of the state they reside. Lottery prizes in New York are taxable income at both the state and federal levels. Depending on where a winner lives in New York, local income taxes may apply, too. For larger prizes, New York's state lottery agency will automatically withhold taxes from winnings.
Claiming a Lottery Prize
Lottery winners can claim prizes up to $600 simply by bringing their tickets to a New York lottery retailer. To claim prizes larger than $600, winners must file a claim form with the state. Federal law requires the state to report all winnings over $600 to the IRS, and the state will automatically withhold taxes on all prizes of $5,000 or more. However, winners are responsible for reporting lottery prizes as income on their taxes regardless of the amount of the prize, whether the state reported the prize to the IRS and whether taxes were withheld.
On prizes of at least $5,000, the usual federal withholding rate is 24 percent as of publication. The New York state lottery agency also withholds 8.82 percent for state income tax. For New York City lotto winners, an additional 3.876 percent is withheld for city income tax while residents of Yonkers will have 1.477 percent withheld for city taxes. If amounts withheld turn out to be more than the winner actually owes in taxes, he can get a refund when he goes to files his tax return. However, if too little is withheld in terms of taxes, winners will have to pay these additional taxes come tax-filing season.
Lump Sum vs. Installments
With certain prizes, such as multimillion-dollar jackpots, those with winning NY lotto numbers have the option of receiving their prizes in annual installments or as a single, smaller lump sum. The decision to choose installments over a lump sum is a personal one, but consulting with an attorney experienced in dealing with lottery winners can prove to be invaluable. Regardless of your choice, taxes are withheld from winnings as they are paid out. So, if a winner takes the lump sum, all taxes will be withheld at once. When a winner chooses installments, any taxes due will be withheld from each payment. If you're lucky enough to be in possession of winning NY lotto numbers, payout calculators online can give you an idea of whether you want take a lump sum or installment payments.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.