That is how a lot the vaccine lottery winners pays in taxes
Frederic J. Brown | AFP | Getty Images
In some places, getting a Covid vaccine can literally be worth it.
Across the country, many states are offering lottery prizes to help increase the number of residents who vaccinate against the virus. If you are one of the winners, don’t forget the tax officer.
“In general, people should familiarize themselves with their tax liability when winning the lottery, be it for cash or material prizes,” says Ulrik Boesen, senior policy analyst at the tax foundation.
More from Personal Finance:
Consumer losses exceed $ 500 million due to Covid-related fraud
What you should know before adding cryptocurrency to your portfolio
These summer activities can have an impact on the tax situation for the next year
In the past few months, US government officials have launched initiatives aimed at getting individuals to sign up for the Covid vaccination. Last week, Missouri – with just 40.8% of its residents fully vaccinated on Friday – joined the other two dozen states as they turned to prices to allow for more vaccinations.
Missouri plans to give 900 vaccinated individuals either $ 10,000 in cash or that amount in an educational savings account (for winners under the age of 18) through random drawings starting August 13th.
Other states have already awarded various prizes. West Virginia, for example, has awarded five prizes worth $ 1 million, plus lifetime hunting or fishing licenses, pickup trucks, rifles, and shotguns. In Maryland, whose vaccination lottery ended in early July, a daily prize of $ 40,000 was awarded on top of a $ 400,000 prize for about five weeks. Michigan said it will be giving away a $ 2 million prize in addition to other cash prizes.
It is important for the winners of these drawings to understand that the IRS generally tax prices as normal income. While cash winners generally withheld 24% of the money for federal taxes – whether the prize is $ 5,000 or $ 1 million – they can owe more at tax time. And people who win cashless are still expected to turn themselves upside down.
In these cases, “you estimate the market value of the price and pay taxes on that amount,” said Bösen.
In addition, you should receive a tax form (a W-2G) from your jurisdiction early next year showing your taxable profit. Remember, these forms also go to the IRS.
They appreciate the market value of the [noncash] Price and pay taxes on this amount.
Senior policy analyst at the tax foundation
Even if you do not receive an income tax form, you must report this, regardless of whether you have won a cash or material prize.
Also note that your winnings could push you into a higher tax bracket, which would mean that part of your income would be taxed at a higher rate.
For illustration purposes only, the 24% federal tax on a $ 1 million price tag is $ 240,000. However, if the winner were unable to reduce their taxable income – such as through large charitable donations – the 37% maximum would apply to that portion of their income over $ 523,600 for single taxpayers ($ 628,300 for married couples, who submit a joint tax return). ). In this example – again without taking any deductions into account – that would mean owing an additional 13% or $ 130,000.
In addition, certain deductions or credits are only available to households with an income below certain amounts, which vary depending on the tax break. And any prize could raise your income above those thresholds, depending on the prize’s size and how much other income you have.
You can also owe state taxes. Depending on the state, these taxes may be withheld from cash awards. Again, however, your actual liability may be higher or lower than the amount withheld, depending on your other income.
“It’s probably a good idea to find out what you’re going to pay now,” said Boesen.