We are receiving a lot of questions each week, and one of the most frequently asked questions is whether the Virginia (VA) Lottery sends tax forms, notifies winners, and simply taxes the lottery winners or not. We can understand that, as if you’re like most people, you’re probably looking for ways to get more bang for your buck.
When you win any VA Lottery, what is the first thing you do? You probably spend the next few months enjoying the fruits of your hard-earned fortune, but what happens before that? Tax issues to deal with? And what happens after that? Do you get busy working your tail off, or do you start thinking about your money again? Most people start thinking about their money, even if they are still enjoying themselves. So, it’s time to take steps to protect your new wealth.
There are lots of debates about our tax system, but one of the most important is the way it taxes lottery winnings.
Does the Virginia Lottery notify winners?
Every year in the United States, millions of people play the lottery, making it the second largest form of entertainment and gambling behind only poker. Although most states provide winners with some sort of notification, there is no requirement for them to do so. Most states follow the Uniform System of Notice, Return, and Claim Forms, which requires winners to provide a claim number and a form of identification. There are currently 29 states that have adopted the USNR.
And yes, Virginia does. If you win a prize, the Virginia Lottery will send you an email if you’re a winner.
It doesn’t matter if you won one year ago or three years ago. So don’t lose hope if you’ve won prizes in the past. You still have a chance to win this time around. But what if you’re not eligible to receive a prize? How much will be left after taxes?
Does Virginia tax lottery winners?
I’m sure you’ve heard the rumors. Do lottery winners actually lose money? Well, some do. However, there are plenty of stories about people winning large amounts of cash and being surprised by how much tax they needed to pay.
One of the most common questions I receive from people who have won the lottery is whether or not they owe taxes on their winnings. Some states have lotteries and tax those state-sponsored lotteries, but not all states do. For example, Pennsylvania doesn’t, but California does. In fact, many people have been shocked to find out that if they win a large amount of money in California, it’s considered taxable income, and they have to pay taxes on it.
The answer is yes, Virginia taxes lottery winners, but it’s a bit favorable compared to other states. Here is how it works according to current VA Lottery law:
The Lottery Department shall withhold Virginia income tax at the rate of 4.0% on the proceeds from any lottery prize in excess of $5,000. The tax shall be withheld on the entire amount of the prize, not merely the amount in excess of $5,000.
So, Virginia is not a tax-free lottery state, but it’s clearly not that bad at all considering the 4.0% withholding.
Does VA Lottery Send Tax Forms?
If you are lucky enough to win the VA lottery, don’t count on getting tax forms in the mail. You will need to contact the lottery headquarters to receive your winnings.
A recent case has prompted us to revisit the question of whether state lotteries are required to send W-2 forms to recipients of prize payouts. The answer to this question turns on the provisions of the lottery tax code. It turns out that if a lottery is a “for-profit” organization, then it is exempt from tax unless it sells tickets and then “derives gross income” from its lottery. And since it’s tax exempt, it’s not required to collect or send W-2 forms to winners.
In this case, you don’t need to wait for a tax form, but the VA Lottery has to report the winnings, hence preparing and sending W-2G forms. Here is the latest information according to Virginia Lottery law.
The Lottery Department shall report every lottery prize of $600 or more on Form W-2G. Form W-2G must be prepared and filed in accordance with the regulations promulgated by the Internal Revenue Service.
Summary
Yes, Virginia taxes lottery winners and reports the lottery winnings, but there are certain thresholds for each process, as explained in our article.
If you’re looking for a complete tax free lottery system, the Virginia Lottery is not for you, but considering the favorable lottery laws, Virginians are still so lucky and can keep most of their winnings after taxes.