Yes, seniors, like all individuals, are required to pay taxes on lottery winnings in New York. Lottery winnings are considered taxable income by both the federal government and the state of New York, regardless of the winner’s age.
Federal Taxes on Lottery Winnings
Federal Tax Rate: The IRS considers lottery winnings as ordinary income, and they are taxed at your regular income tax rate. For large winnings, this could be as high as 37%, depending on your total income and tax bracket.
Withholding: For winnings over $5,000, the lottery will automatically withhold 24% of the amount for federal taxes before you receive your payout. However, depending on your total income, you might owe more when you file your annual tax return.
New York State Taxes on Lottery Winnings
State Tax Rate: New York State taxes lottery winnings as income. The state tax rate varies based on your income, with the top rate being 10.9% as of 2024.
New York City and Yonkers Taxes: If you live in New York City or Yonkers, additional local taxes apply. New York City residents, for instance, may face an additional tax of up to 3.876%.
Considerations for Seniors
Social Security Impact: Lottery winnings could potentially increase your taxable income, which might affect the taxation of your Social Security benefits. Depending on your total income, up to 85% of your Social Security benefits could become taxable.
Estimated Taxes: If you have significant lottery winnings, you might need to make estimated tax payments throughout the year to avoid penalties for underpayment when you file your tax return.
Final Thoughts
Lottery winnings are fully taxable, and seniors in New York are subject to both federal and state taxes on any amounts they win. It’s advisable to consult with a tax professional after winning to ensure you understand your obligations and plan accordingly.