It’s the luck of the draw when playing cards and also when buying lottery tickets.
A clerk at the Frostburg Sheetz store must have made some customer pretty happy recently when they randomly pulled from the roll a winning scratch-off ticket worth $10,000 in the Maryland Lottery’s Lucky 777 game.
We have no idea who won that tidy sum, and it’s really nobody else’s business, but we do know that for prizes larger than $5,000, taxes are withheld as follows: 24% federal tax, 8.95% state tax for Maryland residents or 8% state tax for those who reside outside the state.
The Internal Revenue Service counts lottery cash prizes as gambling winnings, which are taxed as ordinary income, which of course it is not.
It’s easy to imagine the ways that a $10,000 windfall could be spent — college tuition, chipping away at some debts, paying off a car, home improvements or taking the trip of a lifetime — but the fantasy begins to fade somewhat with the realization that the federal and state governments claim a third or so of the loot right off the top.
In the end, what is actually owed to Uncle Sam depends on one’s tax bracket and other factors.
It’s false advertising, in a sense, though, to attach a dollar figure to a prize when it has monetary strings attached. You’re a winner, but also a loser.
Texas, Florida, Tennessee and others that don’t have a state income tax don’t touch lottery payouts. Most states spare non-residents from taxes on their bonanzas, except for Arizona and Maryland, according to TaxAct. Good, old Maryland.
On the federal level, both cash and noncash gambling winnings are fully taxable. Besides lottery payouts, cash winnings include money from sweepstakes, bingo games, raffles and slot machines. The fair market value of noncash prizes, like a free vacation or vehicle, also must be included when calculating one’s income.
For taxpayers who itemize their deductions, winnings can be offset by writing off their gambling losses, up to the amount reported as winnings. It’s all fairly complicated but, at the risk of sounding naive, the best way to simplify things would be to allow people to keep whatever it is they’ve won — all of it.
There will be plenty of taxes paid on goods and services as the jackpots are spent.
Gambling is big business and casinos are major money makers in Maryland, but lottery sales remain brisk. Capital News Service has reported that players spend more than $1.5 billion a year. Maryland Lottery and Gaming has contributed more than $16.7 billion in profit to the state since its start in 1973.
The money residents lose trying to get rich supports state programs and services and helped pay off the Orioles and Ravens sports complexes in Baltimore.
With all the money flowing into government coffers from gaming, it’s a shame big winners are targeted by the taxman.