Winning $1 million in the lottery is a dream come true, but taxes will take a big bite out of the prize before enjoying it. In case you are wondering how much actually the take home amount is after federal and state deductions, we present the answer in this post.
Taxes on a $1 Million Lottery Prize in New York
New York applies multiple tax levels to lottery winnings as demonstrated below:
- Federal Tax (24%): The IRS withholds 24% on winnings over $5,000 automatically. That means $240,000 is deducted right away.
- New York State Tax (10.9%): New York applies a state tax of $109,000 on a $1 million prize.
- NYC Local Tax (if applicable): If the individual lives in New York City, an additional 3.876% local tax applies, which equals $38,760.
Estimated Take-Home Amount
Depending on where you live, the final payout will change:
- Non-NYC residents: Around $651,000 after federal and state taxes.
- NYC residents: Around $612,240 after federal, state, and local taxes.
Does NY Withhold Both State and Federal Taxes?
Yes, New York withholds both state and federal taxes at the time of payout. However, additional taxes might be owed when filing the tax return in accordance with the total income and tax bracket.
Lump Sum vs. Annuity Payments
If you opt for a lump sum payout, taxes are deducted immediately. So you receive a reduced one-time payment. If you choose annuity payments, the winnings are spread over several years and have the potential to reduce the annual tax burden.
Maximize Your Lottery Winnings
To minimize your tax liability, consider:
- Deducting gambling losses: Winnings can be offset with documented gambling losses.
- Tax professional perspective: Experts can present strategic assistance in tax planning for large windfalls.
The NY Lottery Tax Calculator can be used in estimating the exact take-home amount. For custom-tailored assistance with tax planning, Dimov CPA offers expert aid in order to help individuals keep more of their winnings.