ONE Kentucky man was just made lucky after winning a $1 million prize in the lottery.
His winnings, however, were slashed nearly in half because of the state's lotto rules.
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A resident of Frankfort, located in the inner Bluegrass region of Kentucky, is preparing to retire after securing a $1 million win from a Kentucky Lottery scratch-off ticket.
Preferring to remain unnamed, he bought the $30 Mega Millionaire Scratch-off ticket on April 28 at the Kroger on US 127 Hwy South in Frankfort.
Rather than immediately scratching the ticket, he opted to scan the barcode, which displayed the message "see KLC Corp."
This prompted his anticipation, and he remarked, “Well, this is going to be a pretty good one.”
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Upon scratching the ticket, he discovered he had indeed won the game's top prize of $1 million, represented by the number three.
Initially feeling as though he was dreaming, he shared the news with his daughter, who was equally astonished.
“I looked at it, and said, ‘does that really say a million,’” his daughter said.
The following day, he visited lottery headquarters, opting for the lump sum cash payment of $871,000, which amounted to $627,120 after taxes.
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Expressing gratitude for newfound financial security, he said, “I’ve been planning to retire but didn’t have the financial means to do it, and now I do.”
He plans to utilize the winnings to pay off his mortgage and indulge in more leisurely activities like golfing.
For selling the winning ticket, Kroger will receive $8,710.
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TAXING TAXES
The IRS classifies net lottery wins as regular taxable income.
As a result, federal income taxes are payable on the remaining amount after deducting the ticket cost.
Your exact tax obligation depends on your tax bracket, which is established by your earnings and additional sources of income.
Because of this, the IRS usually withholds 25%, and you are responsible for the remaining amount when you file your taxes in April.
There is a bright spot for individuals with the highest tax rate, though. There is a progressive rate of federal income tax.
Lottery winnings: lump sum or annuity?
Players who win big on lottery tickets typically have a choice to make: lump sum or annuity?
The two payout methods can impact how much money you get from your prize.
Annuities pay out slowly in increments, often over 30 years.
Lump sums pay all at once but in a smaller amount, as taxes are withheld in one go. That means 24% of your prize goes to Uncle Sam right away. Many states tax winnings as well.
Annuities can provide winners time to set up the financial infrastructure required to take in a life-changing amount of money, but lump sums have the benefit of being taxed only once.
Inflation is also worth considering when making a choice, as payouts do not adjust with the value of a dollar. That means that you'll likely be getting less valuable money towards the end of an annuity.
Each state and game pays out prizes differently, so it’s best to check with your state’s lottery to confirm payment policies. A financial advisor can also help you weigh the pros and cons of each option.
Experts have varying opinions on whether to take the lump sum or take the annuity.
For example, according to Yahoo Finance, your tax rate as a single filer in 2022 will be as follows after deducting certain amounts:
- 10% on the first $10,275 you earn
- 12% on the next $31,500
- 22% on the next $47,300
- 24% on the next $80,975
- 32% on the next $45,900
- 35% on the next $323,950
- 37% on any amount more than $539,900
It's crucial to remember that certain states will deduct a percentage of your lottery wins from your taxes, the exact amount varying based on where you live.
The rates of income taxes in states that have them range from around 2.9% to 8.82%.
Remarkably, nine states - including the following - do not charge a state income tax:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
In general, the state where the ticket was purchased (and where the prize is awarded) will withhold taxes at the appropriate rate if you happen to reside in one state but buy it in another.
Calculations may be necessary to ascertain the precise amount owing to your state during tax season since you will be credited for any amount that has already been withheld and the states will balance the taxes that have been allocated to each other.
Regarding Kentucky, the law stipulates that lottery winnings must be paid at the state's income tax rate, according to Kentucky.com.
This rate was reduced from 5% to 4.5% at the beginning of 2023, and it may be further reduced by 0.5 percent provided specific requirements are fulfilled and the legislature approves the reduction.
You are still subject to the state income tax on lottery winnings even if you don't live in Kentucky but purchase your winning ticket there.
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Meanwhile, lottery officials are urging participants to check their tickets, as a $50,000 prize remains unclaimed.
And the winner of the March 15, 2024, drawing has until September 11, 2024, to claim their winnings.
Remember to gamble responsibly
A responsible gambler is someone who:
- Establishes time and monetary limits before playing
- Only gambles with money they can afford to lose
- Never chase their losses
- Doesn’t gamble if they’re upset, angry, or depressed
If you or someone you know is struggling with gambling addiction, call the National Gambling Helpline at 1-800-522-4700 or visit the National Council on Problem Gambling online.
