When you play the lottery in Maryland and win prizes of up to $5,001 or more, the lottery is mandated by the law to deduct at least 24% in federal tax and up to 8.95% state tax and that is for individuals who reside in Maryland. If you are not a resident of Maryland then you will have to pay up to 8% of state tax. Generally, any gambler who receives winnings from playing the lottery games, or participates in race track betting is required to pay income tax on the prize money.
Maryland tax law covers every individual therefore, both the residents and non-residents will pay tax from any winnings that they get from gambling. Also, if you gamble at the lottery and make profits of more than $5,000 then you will have to pay both the federal and state income tax. The service providers taxes will, therefore, be held at a rate of 8.75 percent on resident winnings, the tax amount however goes down for the non-residents and the withholding rate has been capped at 7.00 percent.
Do Maryland Lottery Taxes apply to all games?
Punters must also know that the Maryland lottery taxes are applied to all the games, and that includes sports like horse racing. So, for example, if the winnings from your wager are more than $5,000, you can expect the income tax to be held automatically, more especially if the proceeds are 300 times as large as the amount of the original wager.
Also if your winnings exceed $500 and there is no Maryland tax withheld, you will have to file the 502D, which is an individual income tax return form baut for residents that don’t claim any dependents. Form 502D is therefore a declaration of the estimated tax and you will have to pay tax on that income within a 60 day window period from the time that you received the prize money.
Claiming a credit for taxes
Punters are also at liberty to claim a credit for taxes that have been paid with the 502D on their annual income tax return. Individuals who fail to observe the tax laws and regulations by failing to pay the estimated tax due or even fail to report the income, they could end up with a penalty and interest charges. Gambling payouts that are fewer than $500, there’s no 60-day payment requirement, you, therefore, have the option of paying the tax on those and file at the time that you deem appropriate.
So to be on the safe side, it is advisable that you keep a detailed record and put back some of your winnings so that you are always ready for tax time. Most importantly is that the amount that you pay on the winnings largely depends on the amount of your ordinary income that you have for the full year, from all your income generating sources.
There is also concern among punters whether they will have to pay taxes when they win lottery prizes as a group. Such cases normally arise when a group of punters puts their money together to make a winning bet on a horse race. If the above is the case then punters will have to utilize form 5754, to prepare form W-2 G and which is usually used when the person receiving the gambling winnings is not the actual winner or is a member of a group and who is also subject to reporting or withholding.
One member of the group has to fill out the form and then submit it to the prize payer. Now with the information submitted, the payer will then utilize the appropriate form from W-2G, which will be given to each member of the group. Once each member of the group gets their form, they can now take care of their tax responsibilities.
There is also the concern of how to pay taxes in the multi-states lotteries-Maryland lottery at times participates in games such as the Mega Millions, Cash 4 Life, and Powerball, and the prizes won by playing these games are categorized under local income. And which means punters will have to pay taxes just as they pay when they win prizes after playing the Maryland-only lottery games. The above is because the federal and state laws consider them as being the same.
Punters also need to note that the non-cash prizes are also taxable at least according to the IRS and the State. The payer of the prize will give you a form 1099 and which has details of your tax information, including the fair market value of the items. The amount will, therefore, go on line 21 of your IRS form 1040 including the totals from any other 1099s that you received from the same tax year.
How do I claim gambling winnings or losses?
You can access the IRS and Comptroller resources for taxpayers, you will find information consolidated to address a punters concerns.
What do I do if I don’t get form W-2G?
You will contact the entity that owes you the form, they could have made an error that is why you didn’t get the form.