Each state handle paying lottery prizes differently. This article is about the NY lottery from http://www.lohud.com/apps/pbcs.dll/article?AID=2008802220379
....the ubiquitous office pool has points that may take its members by surprise, including how the state Lottery commission pays out winnings on any size prize.
For one thing, no more than 10 names can be included on the payout checks. And for another, individuals who share in a lottery pool are expected to report their winnings and pay taxes individually on their federal income tax whether the check is made out to them or not.
"We strongly recommend that groups plan ahead," said John Charlson, director of communications for the New York Lottery.
The dozen people in the Vits American pool who each contributed toward one of 17 third-place winning tickets for Tuesday's Mega Millions drawing found out the hard way that splitting their $10,000 prize wasn't simply a matter of giving their names to the Lottery Commission and each getting a check for about $600 after taxes.
Instead, the Blauvelt-based group was told it could choose 10 people for the payout checks and leave out two members who would be paid from what the others received; form a group with a tax number to handle taxes and shares; or let one member get the check, pay the tax and divvy up the winnings to the rest.
"It's a little disheartening, I think," said Deirdre Ryder, Vits America's managing director and one of the 12 winners. "It is a rare company that does not have groups of employees pooling together money. My employees are disappointed that such a wonderful event turned into a disappointing and problematic issue."
Ryder has asked the company accountant to advise the winners on the best way to apply for and collect the money. She said she felt the Lottery Commission needed to make its policy on group payouts plainer.
"Most people that win lotteries might not be educated or have any idea of consequences of not handling it properly. I think the Lottery misleads them," she said.
Charlson said the rules governing group lottery winnings were based on practicalities and that his office advises winners to speak with a professional before making any permanent decisions.
Some groups can include dozens of people who each receive a different percentage of the winnings, he said. The Lottery Commission doesn't have the time or staff to figure out multiple winners, their individual checks and their taxes. The commission decided years ago to cap the individual checks at 10 and there are no plans to change that number.
"The Lottery can't regulate every office pool in New York," Charlson said.