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The Taxpayer Services Division of the Colorado Department of Revenue has prepared these answers to frequently asked questions. These answers may or may not apply to you, and should not be considered tax advice. Many of these questions are directed toward those who choose the annuity option. For specifics about your tax situation, consult a tax professional.
How will this prize affect my tax bracket? Will it push me into a higher tax bracket?
Your winnings may put you into a higher federal income tax bracket. Since Colorado only has one tax bracket, it will not affect your Colorado income tax bracket.
How much tax does the Lottery withhold from my prize winnings?
According to federal and state laws, if you provide a social security number the Lottery withholds 29 percent from your prize winnings (25 percent federal; 4 percent state) for prizes over $5,000. If no social security number is provided the Lottery withholds 34 percent from your prize winnings (30 percent federal; 4 percent state).
Will I owe more taxes?
Each person’s tax situation is unique. You may owe more, or you may be due a refund, depending on your income, deductions, exemptions, filing status, etc. Since many factors could be involved, you should seek professional tax counsel as soon as possible to determine your tax situation and the options available to you.
Can I change the amount of tax the Lottery withholds?
No. The Colorado Lottery must withhold the amount of tax specified by law.
Can I deduct the cost of non-winning Lottery tickets from my taxes?
Gambling losses are sometimes deductible. Consult a tax professional to learn how, or if, this applies to you.
What can I legally do to lighten the tax burden from my Lottery winnings?
The Lottery can't do anything to help you reduce your taxes. Like any taxpayer, you can take steps to reduce your total taxes (like contributing to charitable organizations to obtain a tax break). Again, consult a tax professional to learn how to best accomplish your goals.
How do I go about forming a trust?
The Lottery recognizes trusts, partnerships and corporations as winners of Lottery prizes. In order to claim a prize through an entity such as this, you must first acquire a Federal Employer Identification Number (FEIN). If you are interested in forming an entity, and have questions about how it will affect taxes on your winnings, consult a tax professional, bank or company that provides trust services.
If I am a resident of another state, or if I move to another state, will I still owe Colorado state tax on my annual prize payment?
No matter where you live, the Lottery is required to withhold Colorado tax from your winnings. For information on how this affects taxes you must pay in another state, consult a tax professional and/or the tax/revenue authorities in that state.
If I die, can my heirs be entitled to the Lottery prize?
The Lottery will continue to pay the annuity according to schedule. Once the Lottery receives a court order with instructions, we will make the necessary changes to pay whomever inherited the prize. The change is considered an “involuntary assignment.”