N.J. increases initial state tax withholding on lottery winnings

Jul 7, 2016, 8:53 pm (20 comments)

New Jersey Lottery

But does not affect what winner would ultimately pay in state taxes

TRENTON, N.J. — If someone buys a winning ticket for Friday's $540 million Mega Millions game in New Jersey, the state will be collecting more money at payout than it would have last month.

Under the new rates, winnings greater than $10,000 up to $500,000 will have 5 percent automatically withheld, and prizes above $500,000 will face an 8 percent withholding. Previously, prizes greater than $10,000 faced a withholding of 3 percent.

The changes, which went into effect last Friday, aren't an increase in the income tax rate but instead are analogous to tax withholdings in an employee's paycheck. Acting Treasurer Ford Scudder told lawmakers in May the change would assist in the collection of taxes already owed.

The rate change could bring in about $25 million more in gross income tax revenue, the treasurer estimated, a small fraction of total state revenue in 2017, projected at $35.6 billion.

"This simple, commonsense change will help ensure that existing tax liabilities are ultimately collected on winnings," Scudder testified.

While Scudder told lawmakers that legislation would be needed to increase the withholding rate, state Department of the Treasury spokesman Joseph Perone told The Associated Press on Wednesday that the department determined that wasn't needed. The director of the division of taxation within the department had the legal authority to change the rate, Perone said.

The changes mean New Jersey's initial lottery withholding goes from among the lowest in the country to among the highest for the biggest jackpot winners, according to data from the Tax Foundation, a nonpartisan think tank.

Pennsylvania does not withhold income tax from lottery winnings, while New York imposes an 8.82 percent withholding, the highest in the country.

The new initial withholding rates come after a New Jersey family won a nearly $430 million Powerball jackpot in May. Had the new rates been in effect, the state would have automatically collected about $25 million in taxes. Instead, the state withheld only about $10 million in taxes on that winning ticket, and the rest would be owed by the family by April 15.

Winners also face a 25 percent federal withholding on winnings of more than $5,000.

Sal Risalvato, executive director of the New Jersey Gasoline, C-Store and Automotive Association, said the withholding rate change is unlikely to stop people from buying lottery tickets.

Bergen Record, Lottery Post Staff

Comments

music*'s avatarmusic*

 If the States want more income then they should create more jobs. Better paying jobs.

Kingofearth's avatarKingofearth

Quote: Originally posted by music* on Jul 7, 2016

 If the States want more income then they should create more jobs. Better paying jobs.

Creating jobs costs money, money that is raised through taxes. So essentially you want the government to do exactly what it's doing? 

As for the article, NJ just lost a lot of NYC people who go to NJ specifically because it's much cheaper (withholding wise). It'll come back to bite them because the lottery is one part of the economy where cheaper is better.

jjtheprince

And this is what happens when a state has way too many winners lol.

Bleudog101

Quote: Originally posted by jjtheprince on Jul 8, 2016

And this is what happens when a state has way too many winners lol.

Seems like they have a million dollar winner every week lately.

Is this fat azz Christie's idea?

jjtheprince

Quote: Originally posted by Kingofearth on Jul 7, 2016

Creating jobs costs money, money that is raised through taxes. So essentially you want the government to do exactly what it's doing? 

As for the article, NJ just lost a lot of NYC people who go to NJ specifically because it's much cheaper (withholding wise). It'll come back to bite them because the lottery is one part of the economy where cheaper is better.

I don't think it will hurt sales because New Jersey is a "Can't lose" state.  I'd rather win and pay a higher tax rate than not ever win at all.

Todd's avatarTodd

I tried to make it clear in the article, but everyone should be aware that this does not change the amount of taxes you will owe for winning a jackpot in NJ.  It only affects WHEN the majority of the taxes are paid.

I think the top rate in NJ is now 8.9%, so assuming you would pay exactly 8.9%, the new rule means you would pay 8% at the time the jackpot is paid out, and then the additional 0.9% by April 15.  Under the old rules you would pay 3% at the time the jackpot is paid out, and the additional 5.9% by April 15.

Bleudog101

Quote: Originally posted by Todd on Jul 8, 2016

I tried to make it clear in the article, but everyone should be aware that this does not change the amount of taxes you will owe for winning a jackpot in NJ.  It only affects WHEN the majority of the taxes are paid.

I think the top rate in NJ is now 8.9%, so assuming you would pay exactly 8.9%, the new rule means you would pay 8% at the time the jackpot is paid out, and then the additional 0.9% by April 15.  Under the old rules you would pay 3% at the time the jackpot is paid out, and the additional 5.9% by April 15.

Todd,

 

That is simply terrible news for lottery winners.

Todd's avatarTodd

Quote: Originally posted by Bleudog101 on Jul 8, 2016

Todd,

 

That is simply terrible news for lottery winners.

Can you explain how it is "terrible" news?  I mean, personally I would rather do the old arrangement, but in the scheme of things I don't see it as a major blow.  And you know I'm all about paying lower taxes on lottery prizes.

rcbbuckeye's avatarrcbbuckeye

Quote: Originally posted by Bleudog101 on Jul 8, 2016

Todd,

 

That is simply terrible news for lottery winners.

Notice where he emphasized the word "when"?

I am glad I live in a state that doesn't have an income tax.

edmunddantes13

Technically, it's always due every quarter.

 

The US has always been a pay as you go tax entity.

 

April 15th is just accounting day. This is the day that you go back and show I earned this, I paid this throughout the past year, this is what I should have paid, and this is what I/YOU owe YOU/ME.

 

I.e. every quarter you pay the taxes on the income you earned in that quarter.

 

For most people that have a wage job that does withholding's from their paycheck, this all happens in the background. So most don't understand this.

 

If you truly waited until April 15th and made no tax payments until then, you would rightfully be hit for an underpayment/late payment fee for failing to pay your taxes barring some specific exceptions.

 

Anyone that is self-employed, true independent contractor, etc, know this explicitly.

music*'s avatarmusic*

Quote: Originally posted by Todd on Jul 8, 2016

I tried to make it clear in the article, but everyone should be aware that this does not change the amount of taxes you will owe for winning a jackpot in NJ.  It only affects WHEN the majority of the taxes are paid.

I think the top rate in NJ is now 8.9%, so assuming you would pay exactly 8.9%, the new rule means you would pay 8% at the time the jackpot is paid out, and then the additional 0.9% by April 15.  Under the old rules you would pay 3% at the time the jackpot is paid out, and the additional 5.9% by April 15.

 I understand you, Todd.   Here in California, I am thankful for the Democratic leaders in our legislature and the Governor for keeping the,"No taxes on Lottery winnings in California" policy. It is a big break for us.

 California governments will get money when I start spending my jackpot.

music*'s avatarmusic*

Quote: Originally posted by edmunddantes13 on Jul 8, 2016

Technically, it's always due every quarter.

 

The US has always been a pay as you go tax entity.

 

April 15th is just accounting day. This is the day that you go back and show I earned this, I paid this throughout the past year, this is what I should have paid, and this is what I/YOU owe YOU/ME.

 

I.e. every quarter you pay the taxes on the income you earned in that quarter.

 

For most people that have a wage job that does withholding's from their paycheck, this all happens in the background. So most don't understand this.

 

If you truly waited until April 15th and made no tax payments until then, you would rightfully be hit for an underpayment/late payment fee for failing to pay your taxes barring some specific exceptions.

 

Anyone that is self-employed, true independent contractor, etc, know this explicitly.

 When a LP Member wins big he/she will need professional tax advice ASAP. Hire a CPA, Accountant, or an Enrolled agent.Hurray!

RedStang's avatarRedStang

It's probably better this way. There's a lot of winners who go on sprees and have nothing left come April.

MaximumMillions

Quote: Originally posted by Todd on Jul 8, 2016

I tried to make it clear in the article, but everyone should be aware that this does not change the amount of taxes you will owe for winning a jackpot in NJ.  It only affects WHEN the majority of the taxes are paid.

I think the top rate in NJ is now 8.9%, so assuming you would pay exactly 8.9%, the new rule means you would pay 8% at the time the jackpot is paid out, and then the additional 0.9% by April 15.  Under the old rules you would pay 3% at the time the jackpot is paid out, and the additional 5.9% by April 15.

Do I understand it correctly then that the only real disadvantage is in having your taxes due immediately and thereby having less interest gaining principal?

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