As we near the end of the current tax season, there is one tax question that we’re frequently asked here at the lottery: How much do I take home after taxes?
If you win a lottery prize of at least $5,000 there will be money withheld from your total winnings for state and federal withholding – that’s the law - but it’s not as much as you might think.
The state withholding rate in Iowa is 5 percent and it applies to all lottery prizes of $600 or more won in our state. The federal withholding rate is 25 percent and it applies to all lottery prizes of $5,000 or more.
So, in general if you’re claiming an Iowa Lottery prize of $5,000 or more you can assume that you’ll take home about 70 percent of your total prize after withholding.
Here are a couple of examples:
- John Smith claims a lottery prize of $10,000. After state withholding ($500) and federal withholding ($2,500), John takes home a check for $7,000.
- Jane Doe claims a lottery prize of $1,000. Since her prize is less than $5,000, no federal withholding applies; only state withholding ($50), so she takes home a check for $950.
We also recently produced a video for winners that explains what happens when you win the lottery. There’s a section in the video that talks about taxes. You can view the video here.
And don’t forget that you’ll receive a tax form in late January/early February that has a record of any lottery prize of more than $600 that you won in the previous year and the withholding from it so you can document that when you file your income taxes for the year.
Comments