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Question about taxes for Ohio Pick 4 winnings

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Hi everybody. First time reader, first time 'caller'. I am new here, and stumbled across the forums while searching for an answer. I keep finding conflicting information or, as tax-related information tends to be, unnecessarily convoluted.

 

I hit the Pick 4 (Ohio) tonight 50 cents straight. That's a $2500 pay-out. I've only been playing the lotto for about 7 months and prior to this, the best I did was a few 50 cent box hits on the 4 and the 3, and a $500 instant prize. 

 

What I've been trying to figure out is, what is the tax on this $2,500? Mainly, are there withholdings even though it's under $5,000 (because it's more than 300 times the wager)? And second, what would the tax be at time of filing, for somebody in the 15% tax bracket? Basically what should I expect to have to pay in the end, being in the 15% bracket and the prize being under $5,000? If anybody has had personal experience in the same situation, I'd sure appreciate them throwing some knowledge on this! 

 

Also, with this amount, can I get cash when I take it to the approved bank, or do I have to wait like you do for bigger prizes? 

 

Thanks folks. Happy to finally get something decent, long as Uncle Sam doesn't take too much. Been playing that 5037 daily for 3 or 4 months. 

 

-- Chazwick

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In response to chazwick

In most states, when you fill out a claim form and submit it to your state lottery commission, they will take State taxes out, off the top.  As for federal taxes, why can't you just add $2500 in with your regular yearly earnings, and take 15% taxes off the top, like normal ???

Did Ohio give you a $2500 check, to deposit in the bank ?? Don't You have to wait for clearance, unless you have enough in your bank account to cover the check, on the front end ??

RJOh's avatar - chipmunk
In response to chazwick

You can cash winning tickets worth $600 to $5000 at a local approved bank with a claim form and a voucher from your local retailer proving your ticket is a winner.  The bank won't take any taxes out of your prize but will take their fees for processing your claim.  You will later get a W-G form from the state showing your winnings as earned income and you will pay taxes on it at the same rate as all your other income.

RedStang's avatar - laughing chimp.gif

I wonder if our Banks do that. They should install ticket scanners.

RJOh's avatar - chipmunk
In response to RedStang

In my county, winning a lottery prize larger than $600 is a big deal and seldom happen so even if the one bank that is approved to process those claims had a scanner it would be seldom used.  Besides it's the retailer that sold the ticket that gets the commission so he should be the one helping the winner fill out his claim.

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In response to RJOh

Thanks much, RJOh! So the 25% (federal) and 4 or 6 % (state) withholding doesn't apply here then right -- I'm having somebody else claim it for me, and I'm trying to get a sense of how much to give them (I was going to give them some, aside from tax amount, anyways). But obviously, I want to make sure they don't have to pay the taxes on it themselves. Otherwise it's a pretty useless gift. 

And no, it's not to avoid paying child support, alimony, back taxes, or any other debt. 

 

Thanks,

-- Chazwick

RJOh's avatar - chipmunk
In response to chazwick

Did you not read my reply completely?  Who ever claims it will have to pay taxes on it as if it was regular income. 

The only exception I can think of is if you have a dependent child in college who claims it and has no income other than those winnings, you can still claim him as your deduction and he probably won't owe any taxes when he files his tax return.

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I did indeed read your reply completely. Thank you. I just don't have the greatest understanding of taxes I guess. From what I had read elsewhere, it implied that the 25% and 6% withholdings were separate from the income tax (%15 in this case), which I understand, and which you confirmed, is paid as regular income. The part I wanted to clarify then is whether the other 31% also applies, even though the amount is under $5000, because it is more than 300 times the wager. 

 

I get that it's taxed as regular income, just wasn't sure about the other part, which wasn't given a clear answer by any of my external research. Thanks though.

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In response to chazwick

"The part I wanted to clarify then is whether the other 31% also applies, even though the amount is under $5000, because it is more than 300 times the wager."

If you won $5000 that amount is added to whatever other income you had for the year and then you're taxed on that total income. How much depends on your tax bracket. Federal and state taxes are withheld from winnings over $5000, the total win is added to your income, and the taxes withheld are applied as any ordinary income tax.

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Thank you, Stack47.

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The best thing that you could do is go the the Ohio lottery HQ. They will tell you what needs to be done. If you take your winning ticket to them, they will cut you a check with the taxes taken out.

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In response to chazwick

At 15% rate, $375 will be due to the Feds. If you (or the friend, if they claim it) work another job, it's likely an excess has been withheld over the course of the year that would likely cover most, if not all, of the additional $375. Typical tax refund for many is well over $1,000.

Ohio tax is a little more tricky to calculate exactly, but figure on it being around 4%; around $100. Total tax due between state and federal being around $475 at 15% and 4% rates, respectively...

If one's federal tax rate is 25%, which is typical for many, then figure on paying $625; ~$725 total. Still, many workers receive federal tax refunds in excess of that, so there may be little to no added tax due.

Federal tax rates go high as 39.6%, and there's a 0.9% Medicare surtax above $250,000 (filing individually), so for a high-income tax filer, the total tax due, including state, could easily run 40% - 50%.

To minimize tax impact of winning, keep track of all wins and losses - not just the large ones, but all of them. Very few gamblers do that, though for the occasional gambler winning tens of thousands or less, simply claiming the amount of one's losses being equal to one's winnings will do, and likely won't be questioned. Gamblers who frequently win and deduct large amounts of losses should keep a journal - not doing so risks an audit, and being required to pay the difference, plus a penalty.

Basically, for an occasional smallish reportable win, you could simply claim your losses equal (or exceeded, but that can't be claimed) your winnings. That way you avoid paying much of the federal (and state too, depending on their rules) tax that would be due. However, to take advantage of this, one must itemize when filing and forgo the standard tax deduction - doing so is more costly for many lower income filers, and hence many can't offset losses against winnings.

As for giving a friend a winning ticket, if it's truly a gift, you have some choices ...

-- If your income is relatively high and you already itemize, claim the ticket yourself, and then give your friend the net amount after taxes. Depending on the tax calculations, you may be able to give the friend most of the $2500.

--If your income is relatively low, but your friend's income is relatively high and they already itemize, then give them the ticket for them to claim and pay tax on - they can offset their losses (setting aside the ethics of this, if they're not a regular gambler and didn't really lose that much) against winnings to minimize the tax due.

--If both your income and that of your friend are both too low to itemize, claim the ticket yourself and give your friend $2,000 cash.

* Addendum, if you and/or the friend receive various types of public assistance, claiming lottery winnings could have adverse consequences. Some get around that issue by selling their winning ticket to a third party at a sizable discount for cash on the spot. Many lotteries are on to this, but few do much, if anything about it - sure, they don't like the practice, but if they're too aggressive, they'll lose sales to other gambling venues, including offshore and illegal ones (number rackets are still around).

I'm not an accountant nor a tax preparer. There may be other scenarios to consider / better options than the above. Hope this helps.

grwurston's avatar - Lottery-062.jpg
In response to chazwick

Click on the USA MEGA on the left side. Scroll down to MM FAQ's. Click on that and scroll down till the question about taxes comes up. It will tell you how much each state takes out.

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Thank you so much for the detailed answer. I appreciate that. It's only partly a gift. We worked it out now. Thanks for all the info, definitely helpful. And no public assistance. It should be alright, but we will see tomorrow. 

 

By the way: Happy new year, everybody!

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