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New law could alter how much Pa. Lottery winners get to spend

A new law allows back taxes and outstanding court judgments to be deducted from Pennsylvania Lottery winnings over $2,500. (File photo/PennLive.com)

*This story has been updated to reflect more information about the administrative fee related to lottery winning intercepts.

A new law took effect on Tuesday that will help some Pennsylvania Lottery winners spend their winnings.

The law, which was enacted by Gov. Tom Wolf a year ago, applies only to those lucky enough to win a single prize of more than $2,500.

It makes it so winners who owe back state taxes will have that amount deducted from their lottery winnings, provided their appeal rights on their tax debt has expired or were exhausted.

Delinquent taxes would be deducted, though, only after any back child support is collected from the prize, which is an intercept authority given to the lottery in 1992.

Once those debts are paid, the new law directs the lottery to look into whether the prize winner has any unpaid court-ordered obligations such as court costs, fines and restitution. If so, they get deducted.

Any outstanding obligations that exceed prize amounts would leave the winner with nothing but the knowledge of knowing some of their debts have been paid.

But that’s not all.

The law requires lottery officials to also make an inquiry with the Department of Human Services to determine if the prize winner is receiving public assistance and whether the prize makes them ineligible for benefits going forward.

According to an earlier news release, state Rep. Adam Harris, R-Juniata County, who sponsored this legislation, called that welfare benefit check “an important part of the bill because it is imperative that public assistance funds are available for people who truly need them. It protects those who are less fortunate and ensures the integrity of the welfare system.”

The law does allow the state Department of Revenue, which oversees the lottery, the ability to assess a fee for the cost of administering this intercept program, which would be yet another deduction from the winnings.

Revenue press secretary Jeff Johnson said that fee has been set at $15 and will only be charged if it is determined the winner owes money for unpaid taxes or court-ordered obligations.

What’s more, prizes over $5,000 will have state and federal taxes withheld at the current rates. As of January of this year, those rates were 24 percent for federal income tax and 3.07 percent for state personal income tax, according to lottery officials.

Prize claimants will be notified if a debt is to be paid with their prize winnings along with information about their rights to appeal the amount with the intercepting entity.

The lottery winnings intercept has proven to be effective means for collecting back child support. Just in the past five years, lottery officials say it has resulted in the collection of nearly $666,000 in delinquent child support.

What hasn’t changed about the lottery is you still have to play the lottery to win a prize but if you win a bigger prize, some winners may find it pays less than they had hoped.

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New law could alter how much Pa. Lottery winners get to spend A new law allows back taxes and outstanding court judgments to be deducted from Pennsylvania Lottery winnings over $2,500. (File

Are Pennsylvania Lottery prizes taxable?

Are Pennsylvania Lottery prizes considered taxable income?

Yes. By law, Pennsylvania Lottery monetary prizes are taxable income and should be reported when filing federal and state taxes.

The law also requires the Lottery to withhold taxes from cash prizes over $5,000. This means that before paying the prize, the Lottery will withhold 24 percent in federal taxes (rate applied to prizes paid on or after Feb. 7, 2018) and 3.07 percent in state taxes. These rates were current at the time of publication and are subject to change.

Because a winner’s total tax liability may vary based on a number of factors, it’s likely a good idea to talk with a qualified tax professional before filing a tax return. The Lottery cannot provide tax advice.

HOW TO REPORT WINNINGS

If you won a prize over $600 during 2017, the Lottery will mail a W-2G tax form to your address on file. Most forms will arrive by early February. Submit this form with your tax returns for the year.

If you misplace this form, the Lottery is unable to print a replacement. You can print your own replacement form by visiting:
https://www.doreservices.state.pa.us/pitservices .

Winners will receive a W-2G form by mail for each prize claim over $600. Please keep each of these forms to submit with your tax returns for the year.

Are Pennsylvania Lottery prizes taxable? Are Pennsylvania Lottery prizes considered taxable income? Yes. By law, Pennsylvania Lottery monetary prizes are taxable income and should be reported ]]>