Top Prize Taxes paid ? Don't count on it !

Some lotteries offer prizes that are touted to be “Taxes Paid”. Wonderful! Who want’s to worry about paying taxes?
According to the Atlanta Journal-Constitution, Wayne Sheets, of Thomasville GA, won $3 million playing the instant game $3,000,000 Taxes Paid. He purchased the ticket at Flash Foods in Thomasville. The gardener says he already has plans for the money growing organic vegetables and raising free range turkeys and chickens for his personal use.

Mr. Sheets played a $20 scratch game and really got lucky as the odds of winning the top prize are 1 in 2,040,000. According to the Georgia Lottery the Top Prize of $4,347,827 includes federal income tax of 25% ($1,086,957) and state income tax of 6% ($260,870) for a projected net prize of $3,000,000, paid in one lump sum.

So what are the odds that Mr. Sheets really didn’t win his prize “Taxes Paid”? Oh, I’d say 1 in 1. As noted above, the Georgia Lottery pays federal income taxes at 25%, which is the MINIMUM the IRS requires for withholding on gambling prizes. Looking at the 2013 IRS income tax rates we find:

Rate
Single Filers
Married Joint Filers
Head of Household Filers
10%
$0 to $8,925
$0 to $17,850
$0 to $12,750
15%
$8,925 to $36,250
$17,850 to $72,500
$12,750 to $48,600
25%
$36,250 to $87,850
$72,500 to $146,400
$48,600 to $125,450
28%
$87,850 to $183,250
$146,400 to $223,050
$125,450 to $203,150
33%
$183,250 to $398,350
$223,050 to $398,350
$203,150 to $398,350
35%
$398,350 to $400,000
$398,350 to $450,000
$398,350 to $425,000
39.6%
$400,000 and up
$450,000 and up
$425,000 and up

OUCH! There is a HUGE difference between 25% and
nearly 40% federal taxes!

Mr Sheets needs to run to his financial advisor and set aside a huge chunk of his winning for additional taxes. Maybe growing organic vegetables and raising free range turkeys is some type of tax shelter?

I’ll address this and other taxing situations in my forthcoming book, “Read This BEFORE You Win”.

PS: Shame on the Georgia Lottery for what is blatant false advertising by calling this game “Taxes Paid” when in no case could the money they set aside for taxes ever cover the Federal income tax on the prize.