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How do I claim my lottery tax credit in Wisconsin?

Winning the lottery is an exciting event, but it also comes with some important tax implications that you need to be aware of. If you are a Wisconsin resident and win a lottery prize, you may be eligible to claim a tax credit to reduce the amount of state tax you owe on the prize money.

What is the lottery tax credit in Wisconsin?

Wisconsin offers a state tax credit equal to 5% of the prize amount, up to a maximum credit of $775. This credit applies to winnings from the Wisconsin Lottery as well as multi-state games like Powerball and Mega Millions. It can help offset some of the tax burden when you claim your winnings as income on your Wisconsin tax return.

Who is eligible for the credit?

To qualify for the lottery tax credit, you must meet the following requirements:

  • You must be a resident of Wisconsin for tax purposes
  • You must have won a lottery prize that is subject to Wisconsin state tax
  • You must claim the prize money as income on your Wisconsin tax return for the year you won the prize

The credit is available to individual taxpayers as well as married couples filing jointly. If you win a prize on a joint ticket, you can each claim the maximum $775 credit when filing.

How is the credit amount calculated?

The lottery tax credit is equal to 5% of the amount you claim as lottery winnings income, after deducting the cost of the winning lottery ticket. Here is an example of how the credit would be calculated:

  • Lottery prize amount: $100,000
  • Cost of the winning ticket: -$2
  • Net winnings claimed as income: $99,998
  • Credit percentage: 5%
  • Credit calculation: $99,998 x 0.05 = $4,999.90

In this example, your lottery tax credit would be $4,999.90. However, the maximum credit allowed is $775, so that is what you would claim.

How do I claim the lottery tax credit?

To claim the credit, you must file a Wisconsin income tax return for the year you won the prize and report your winnings as income. Here are the steps to take:

  1. Report the full amount of your lottery winnings on your Wisconsin tax return. For most prizes, this will be the Form 1 or Form 1NPR.
  2. If necessary, fill out Schedule M to claim any gambling losses to offset against your winnings.
  3. On Schedule CR, enter code “04” and the amount of your lottery tax credit, up to $775 maximum.
  4. The credit will reduce your Wisconsin tax liability dollar-for-dollar.

Be sure to keep documentation on the winning ticket, prize amount, and any other evidence to support your credit claim. You may need to submit this if requested by the Wisconsin Department of Revenue.

Important dates

To claim the credit for a particular tax year, you must report your winnings and file your Wisconsin return by the following deadline:

  • For winnings from the Wisconsin Lottery, file by the tax deadline for the year you claimed the prize (typically April 15).
  • For multi-state game winnings, file by the April 15 deadline of the following year after you won.

So for example, if you won a Powerball jackpot in March 2023, you would need to claim the winnings on your 2023 Wisconsin return filed by April 15, 2024.

What winnings qualify for the credit?

The Wisconsin lottery tax credit applies to the following types of lottery prizes:

  • Wisconsin Lottery instant scratch-off games
  • Wisconsin Lottery lotto games like Powerball and Mega Millions
  • Wisconsin Lottery raffle games
  • Wisconsin Lottery terminal games like Badger 5 and SuperCash!
  • Multi-state games like Powerball and Mega Millions

Any prize of $500 or more from these games is taxable income in Wisconsin. To qualify for the tax credit, you must claim the prize money as income and pay any state taxes due.

What winnings do not qualify?

The following lottery prizes do not qualify for the Wisconsin tax credit:

  • Winnings from other state lotteries, like Illinois or Minnesota
  • Winnings from non-lottery gambling, like casino games or horse racing
  • Smaller Wisconsin Lottery prizes less than $500
  • Prize money from game shows, competitions, or contests

So be sure the winnings you are claiming meet the requirements for the Wisconsin lottery tax credit.

Can I claim the credit if I take the lump sum cash option?

Yes, you can still claim the lottery tax credit if you choose to take a lump sum cash payout for your prize instead of annuity payments over many years. Here is how it works:

  • Report the full lump sum amount as income on your Wisconsin tax return for the year you received it.
  • Calculate your credit as 5% of this lump sum amount.
  • Claim the credit up to the $775 individual maximum when filing.

The timing may differ, but the credit calculation remains the same whether you take annuity payments or a lump sum option.

Can I carry forward an unused credit?

The Wisconsin lottery tax credit is non-refundable, meaning it can only reduce your tax liability to zero. You cannot get a refund for any unused credit amount. However, you may be able to carry forward unused credit to future tax years.

If your credit exceeds your tax liability for the year, you can claim a carryover credit on your Wisconsin return for up to the next 5 tax years until the full amount has been used up.

For example, if you have a $1,000 lottery tax credit but only $500 of tax liability, you could claim $500 of the credit that year. Then you could claim a $500 carryover credit on each of the next two returns until the full $1,000 is used up.

Carryforward calculation

To calculate your carryover credit amount, take these steps:

  1. Figure out your lottery tax credit based on 5% of net winnings.
  2. Compare this to your Wisconsin tax liability.
  3. If your liability is less than your credit, the remainder is your carryover amount.

Be sure to track your carryover from year-to-year so you can properly claim it.

Can I claim the credit if I move out of Wisconsin?

If you win lottery prizes as a Wisconsin resident but then move to another state, you may still be able to claim the Wisconsin lottery tax credit. The key requirements are:

  • You must have been a Wisconsin resident in the year you won the lottery prize.
  • You must report the winnings and pay tax to Wisconsin for that year.

As long as you meet these criteria, you can claim the credit on your final Wisconsin return before moving, even if you are now residing in another state.

Part-year residents

If you win the lottery in a year when you are only a Wisconsin resident for part of the year, you may still qualify for a prorated credit if you report the winnings to Wisconsin. The credit will be based on the portion of winnings taxable by Wisconsin compared to the full prize amount.

Nonresidents

If you are not a Wisconsin resident for tax purposes, then you cannot claim the Wisconsin lottery tax credit even if you won a prize from a Wisconsin-based game. Nonresidents still must report winnings to Wisconsin and pay tax on the portion of income considered Wisconsin-sourced.

How are lottery winnings taxed in Wisconsin?

Lottery winnings are treated like ordinary income for tax purposes in Wisconsin. Here are some key points on how they are taxed:

  • Prizes of $500 or more must be reported as income on your Wisconsin tax return.
  • The full prize amount is taxable, after deducting the cost of the winning ticket.
  • Wisconsin applies a progressive tax rate bracket system to determine your rate.
  • The top tax rate is 7.65% but your effective rate may be lower based on your income.
  • State tax is withheld automatically for prizes over $2,000 paid by the Wisconsin Lottery.

Be sure to report all winnings and income accurately and keep good records. Understating income can lead to tax audits and penalties.

Withholding requirements

For Wisconsin Lottery prizes over $2,000, state tax is automatically withheld when you claim the prize. Here are the withholding rates:

  • $2,000-$4,999 – 5% withholding
  • $5,000-$14,999 – 6% withholding
  • $15,000 or more – 7% withholding

Multi-state jackpots may also be subject to mandatory federal withholding at 24%. Any amounts withheld will be credited when you file your returns.

Estimated payments

For very large prizes, you may need to make estimated tax payments for your winnings instead of relying solely on withholding. This ensures you don’t owe a large balance due come tax time. See the Wisconsin Department of Revenue guidance for more details on estimated payments.

What if I have gambling losses to claim?

If you have incurred gambling losses during the year, these can be used to offset your lottery winnings and reduce the amount of taxable income.

You must file Wisconsin Schedule M to claim an itemized deduction for gambling losses against lottery winnings. You can deduct losses up to the amount of winnings reported.

Keep detailed records like receipts, statements, tickets, etc. to prove your loss amounts. Only what you can document can be deducted.

Examples

Here are some examples of deducting gambling losses on Wisconsin lottery winnings:

Scenario Winning Losses Taxable Income
You win $5,000, no losses $5,000 $5,000
You win $5,000, $3,000 losses $5,000 $3,000 $2,000
You win $5,000, $7,000 losses $5,000 $5,000 $0

As you can see, the greater your documented losses, the less tax you will owe on your winnings.

Are lottery winnings taxed differently for seniors?

There are no special provisions or exemptions for taxation of lottery winnings based on the winner’s age. The same rules and tax rates apply regardless of whether you are retired or a senior citizen.

However, for taxpayers over age 65, Wisconsin does offer special credits that can help offset tax on lottery winnings and other income. These include:

  • A retirement income credit equal to tax paid on up to $5,000 of eligible income ($2,500 if married filing separately)
  • A homestead credit based on property taxes paid on a Wisconsin residence
  • A farmland preservation credit for taxes owed on farmland income

Seniors should proactively research all credits available to them when filing their Wisconsin return.

Are there any special rules for winning multiple prizes?

If you win multiple Wisconsin Lottery prizes of $500 or more in the same tax year, they would all be combined and reported together on your Wisconsin return. For example:

  • March – Win $1,000 on a scratch-off ticket
  • June – Win $5,000 playing Powerball
  • October – Win $2,500 on a 5-number lotto ticket

You would report total lottery winnings of $8,500 for the year ($1,000 + $5,000 + $2,500), and calculate your lottery tax credit based on that full amount.

The timing or number of prizes does not matter – as long as they are in the same tax year, you aggregate them when filing.

Splitting winnings

If you split a joint prize with other winners, you would only report your share as income. For example, if you split a $10,000 prize evenly with two other people, you would each claim $3,333 in winnings.

How are jackpots paid over multiple years taxed?

For large lottery jackpots, you often have the choice between taking a lump sum cash payout or annuity payments over many years. Here is how the taxes work with each option:

Lump sum payment

  • Report the full lump sum amount as income in the year received.
  • Calculate your lottery tax credit based on the lump sum amount.
  • You only receive one credit in the lump sum tax year.

Annuity payment

  • Report each annual payment as income in the year received.
  • Calculate credit annually based on each payment amount.
  • You can claim a credit each year you receive a payment.

While annual payments are spread out, your total tax and credits will end up the same under both options. Consult a tax professional to understand the implications for your situation.

Are lottery winnings taxed after the winner’s death?

Lottery winnings may continue to be taxed after the winner’s death depending on the situation:

  • If winnings were being paid as an annuity, required minimum withdrawals from the remaining prize money may be taxable to any beneficiaries or heirs.
  • If winnings are paid to the deceased winner’s estate, this money would be taxable on the estate’s income tax return prior to distributions to beneficiaries.
  • Beneficiaries will owe income tax on any lottery winnings they receive from the estate or inherited annuity.

Consult a tax professional to understand how inheritance and estate taxes apply to lottery winnings for your situation.

Conclusion

Winning the lottery is a big windfall, but also creates some tax obligations. By understanding the Wisconsin lottery tax credit, tax rules for winnings, and claiming all deductions allowed, you can reduce how much tax you owe and maximize this exciting prize.