How much taxes are taken out of of a prize?
If more than $5,000 is won more of the winnings will be kept as a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003, signed May 28. Because the new tax rate is lower for citizens and resident aliens, the Internal Revenue Service (IRS) will require less withholding from the winners’ payments. The previous Act, effective Aug. 6, 2001, specified a gradual decrease in the withholding rate over a period of years. The new law, which replaces the 2001 Act, reduces the tax rate to 25 percent, and the effective date is retroactive as of Jan 1, 2003. This is a tax rate decrease of two percent on prizes over $5,000 for U.S. citizens and resident aliens. While there is no withholding on lottery prizes of less than $5,000, unless paid in installments or to a nonresident alien individual, winnings are still subject to income tax. However, the 2003 decrease in the tax rate applies to all income, including lottery prizes. In addition, changes in deductions may also reduce the amount
