Tax Liability For Winners Of The Maryland Lottery

There are different rules in effect in each state that has a lottery governing the collection of taxes on winnings. Winners of the Maryland lottery that get prizes over 5000 dollars will have tax money withheld from their prizes.

Anyone who wins a prize larger than 5000 dollars will see 25 percent of that (1,250) held for payment of federal tax. In addition, Maryland residents will be charged another 9.25 percent off the top for state taxes. Even non-residents will be hit for 7.5 percent as state tax.

While these rules are in effect and amounts are automatically withheld from large prizes, it is important to remember that all prizes are subject to taxes. In order to see how much one will actually owe, federal tax information can be found on the IRS website at www.irs.gov. The state also offers information online at individuals.marylandtaxes.com. Lottery winnings are considered gambling income.

One of the worst mistakes a person can make upon winning the lottery is failure to pay all the taxes due on his/her prize. While tax is withheld on large prizes, even small prizes are subject to taxation and the withholding on the larger prizes may not always cover the total tax due. The Maryland lottery tries to help with estimated tax payments, but the responsibility belongs to the winner to settle in full with the federal and state governments.