By now, you probably know that winning a $1,000,000 lottery prize doesn’t mean an extra million in your bank account. That’s because the government sees your winnings first and takes out the appropriate taxes. But this whole process is a little different in Washington State.
The lottery tax in Washington State is 0% on prizes over $5,000. Since Washington has no income tax, you won’t owe state taxes on your prize. 24% of your winnings will be withheld for federal taxes before claiming your prize. You’ll owe more in taxes if you advance to a higher tax bracket.
Winning the lottery can potentially change your life forever. That means you want to be sure that you’re paying the appropriate taxes to guarantee no legal issues in the future. So, let’s go over how winning the lottery in Washington State really works.
Claiming Your Winnings
As soon as you win the lottery, your first thought will be, “How do I claim my money?” But exactly how you do this will depend on how large of a prize you’ve won.
Here’s a look at how claiming your money varies based on the prize amount.
Prizes Valued at Less Than $600
In Washington State, winning a lottery prize of $600 or less means you can go to any in-state lottery retailer to claim your prize. You also have the option to claim your prize by mail by sending your signed winning ticket to the Washington Lottery Headquarters.
Winnings less than $600 don’t have to be reported to the IRS. That means you don’t owe any taxes on these small winnings at either the state or federal level.
Prizes Valued at More Than $601
When you win at least $601 in the Washington State lottery, you’ll have to make an in-person trip down to a regional lottery office in Washington. There are six locations across the state where you can claim your winnings in-person.
There are additional steps you have to take to claim this size prize.
Along with the signed winning lottery ticket, you’ll also have to bring photo identification and your social security card to the regional office. The social security card is needed because winnings over $600 need to be reported to the IRS.
You’ll also have to submit a W-2G form with your federal tax returns to claim these winnings to the federal government.
Taxes on Lottery Winnings
Any lottery prize valued at over $5,000 in Washington State is considered taxable income by the federal government.
Before you can claim your winnings, the State Lottery will take 24% out of the prize total to go toward the required federal taxes on lottery winnings. If you’re not a legal resident of the United States, your federal taxes will be higher, at 30%.
These federal taxes go for both lump sum and annual winnings.
State Lottery Tax in Washington
Washington is one of the few states in the United States that doesn’t require its residents to pay a lottery tax on winnings. That means no taxes are taken out at the state level in Washington State.
The only taxes removed from your winnings would be the 24% toward federal taxes.
Your Take Home
For planning purposes, you’ll want to know how much you’re taking home at the end of the day after clinching a victory in the Washington State Lottery. The amount you’ll see in your bank account will depend on the type of prize you claim.
In most cases, you have the choice between a single lump sum payment (50% cash option) and a yearly option split over 25 years. Both of these also have an impact on the taxes you owe and the tax bracket you’ll fall into.
Let’s see what the difference is in terms of your take home.
50% Cash Option
The 50% cash option for lottery winnings guarantees one lump sum payment to your account. Though this is a great option if you need funds now, you will have to give up 50% of your winnings plus the 24% federal tax.
After taxes, a $1,000,000 prize will be valued at just $380,000.
Here’s a look at how much you’ll take home with the 50% cash option in the State of Washington.
|Your Winnings||Your Take Home|
Instead of deducting 50% of your prize and an additional 24% in federal tax, you can secure your prize winnings in 25 yearly payments. Since you’re not giving up half of your prize, you’ll get about double the amount of money over the next 25 years.
After taxes, a $1,000,000 prize will bring you yearly payments of $30,400
Here’s a look at how much you’ll take home with the annual payment option in the State of Washington.
|Your Winnings||Annual Payments||Total Take Home (25 Years)|
Note: You will have to pay federal tax on a yearly basis on your annuity payments.
Other Possible Prize Deductions
As simple as the prize options seem right now, there’s also the chance that you’ll owe some extra money after you report your winnings over $600.
Reporting your winnings to the IRS means the government will figure out if you have any debt that still needs to be paid to the government. Before you can claim your prize, the state government will pay back these debts with your winnings.
You might end up taking home $0 if you owe a significant amount of fees to the government, like child support.
Voluntarily Taking Out More Taxes
As a lottery winner in Washington, you have the choice to pay more in taxes for your winnings before claiming your award. Now, you might be wondering why a person would want to pay the government more money than they currently owe.
Winning the lottery might just send you into a new tax bracket.
So, not only do you have to forfeit the 24% in federal tax on your winnings, but you also might owe additional taxes if you end up in a higher tax bracket at the end of the year. That’s especially the case if you’ve chosen a lump-sum payment.
Allowing the government to withhold more of your winnings can actually secure you a tax refund if you end up overpaying.
But it also gives you a bit of financial security. That’s because the more you earn over the course of the year, the more you owe the government in taxes.
Coming into a lottery prize of millions of dollars can lead you to make purchases you would’ve never made in the past. If you end up spending a majority of your winnings over the year and fall into a higher tax bracket, you might end up owing more in taxes that you don’t currently have.
Winning the lottery in Washington State is a great way to guarantee that you maximize your take home. All you have to worry about paying is the 24% federal tax on prizes over $5,000.
Though you only forfeit 24% of your winnings after a lottery win in Washington State, you might end up taking home even less at the end of the day. Selecting a 50% lump sum cash prize will drop your take-home by 50%. You’ll also have all payments due to the government (like child support) taken out of your winnings before you can claim them.
- Are Lottery Tickets/Winnings Taxed?
- What to Do if You Win the Lottery: The Ultimate Guide
- Here’s What Happens When You Win the Lottery
- Are Lottery Winners Happy?
- Do You Pay Taxes on Lottery Winnings Every Year?
- What Is the Lottery Tax in Texas?
- Do You Pay Taxes on Lottery Winnings Every Year?
- Lottery Annuity vs. Lump Sum: Which Is Better?
- How Much Tax Do You Pay on a $10,000 Lottery Ticket?