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 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 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 25 percent as of publication. The New York state lottery agency also withholds 8.82 percent for state income tax. For residents of New York City, an additional 3.876 percent is withheld for city income tax. Residents of Yonkers will have 1.477 percent withheld for city taxes. If amounts withheld turn out to be more than the winner actually owe in taxes, he can get a refund when he files his tax return. If too little is withheld, winners will have to pay additional tax come tax-filing season.
Lump Sum vs. Installments
With certain prizes, such as multimillion-dollar jackpots, winners have the option of receiving their prizes in annual installments or as a single, smaller lump sum. 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. If a winner chooses installments, taxes will be withheld from each payment.
- Steve Snowden/iStock/Getty Images