Does Utah Tax Lottery Winnings? What Winners Need to Know

However, it is important for winners to understand that these windfalls are generally subject to taxation. Lottery winnings, whether a modest sum or a life-changing jackpot, are considered taxable income by government authorities.

Utah’s Approach to Lottery Winnings

Utah does not operate its own state lottery, distinguishing it from many other states that generate revenue through such games. Despite the absence of a state-sponsored lottery, Utah residents who win prizes from out-of-state lotteries are still subject to state income tax on those winnings. The state views these lottery winnings as a form of taxable income, similar to wages or other earnings.

For tax year 2024, Utah’s individual income tax rate is 4.55%, a slight reduction from the previous 4.65%. If the lottery winnings were earned in a state that also taxes non-resident winnings, Utah residents may be able to claim a credit for taxes paid to that other state. This credit, reported on Utah Form TC-40S, helps prevent double taxation on the same income. However, if the source state does not tax lottery winnings, like California, no such credit would apply.

Federal Tax Rules for Lottery Winnings

At the federal level, all lottery winnings are considered ordinary taxable income by the Internal Revenue Service (IRS). This means the winnings are taxed at the same rates as other types of income, such as salaries or wages. The specific federal tax rate applied depends on an individual’s total taxable income and their filing status. Winning a substantial prize can potentially push a taxpayer into a higher federal income tax bracket, with rates ranging up to 37%.

For lottery winnings exceeding $5,000, the IRS mandates that the payer, such as the lottery commission, withhold federal income tax. This automatic withholding is typically applied at a flat rate of 24% of the winnings. While this withholding covers a portion of the tax liability, it may not be sufficient to cover the entire federal tax owed, especially for very large prizes. Winners should anticipate owing additional federal taxes when they file their annual return.

Reporting and Payment Responsibilities

Lottery winners have specific reporting obligations to both federal and state tax authorities. If lottery winnings meet certain thresholds, the payer is required to issue Form W-2G, “Certain Gambling Winnings,” to the winner and the IRS. Generally, this form is issued for winnings of $600 or more, provided the amount is at least 300 times the wager. For specific games like slot machines or bingo, a W-2G is issued for winnings of $1,200 or more, while keno winnings of $1,500 or more trigger the form.

This document details the gross winnings and any federal income tax withheld. Even if a W-2G is not received for smaller winnings, all lottery prizes must still be reported as income.

For federal taxes, lottery winnings are reported on Schedule 1 (Form 1040) as “Other Income.” Depending on the size of the winnings and other income, winners may need to make estimated tax payments throughout the year to avoid potential underpayment penalties. These quarterly payments, typically due in April, June, September, and January of the following year, help ensure that tax obligations are met as income is received.

For Utah state income tax purposes, the lottery winnings are included in the taxpayer’s adjusted gross income reported on Form TC-40, the Utah Individual Income Tax Return. Any estimated tax payments for state taxes would also be made quarterly to the Utah State Tax Commission. It is advisable to keep thorough records, including the W-2G form and any documentation of estimated tax payments, to facilitate accurate annual tax filing.