Lottery, and other winnings throughout the year, that are $600 or more are taxed by the IRS. If the money is received as a lump sum, you will pay the full tax amount. If it is drawn out over several years, you will be taxed by what you receive for each calendar year. The federal tax on winnings is 24% when and the local government will also take their own portion for taxes. You can expect to pay between 30-35% of taxes on your winnings.
Earned income refers to all of the ways that you get paid throughout the year. This includes your paycheck, commissions, bonuses and income less expenses for self-employed individuals. It also includes money earned from investments, interest, dividends, alimony and Social Security. Adjusted gross income refers to this money less any standard deductions that are available to you. These deductions, referred to as ‘above the line deductions’, are those that are standard to everyone regardless of whether they are itemizing.
The amount of taxes withheld from your paycheck is a science, withhold too little and you get hit with a big tax bill. Too much and you miss out on extra cash throughout the year. For employees, the W-4 is what largely determines how much tax is held. Factors that may make you want to revisit your tax withholding include a change in marriage status, dependents, home ownership, or a change in your spouse’s employment.