Social security refers to the program which uses public funds to ensure a degree of economic security for the people. In the United States, it was established in 1935 which takes care of disability, old age, income for the elderly amongst others.
The taxes used to run the social security program is from both employers and employees. These taxes are not used primarily for the welfare of these employees and employers but for people who have attained retirement age or people who are eligible to benefit from the program. It is a cycle. People who can work how pay taxes for those who have worked before them and when the workers of how retire, those who are working then get to pay their own social security.
However, for the following sources listed below, gambling winnings over $5,000 are subject to income tax withholding: Any sweepstakes, wagering pool (including payments made to winners of poker tournaments), or lottery. Gambling winnings are taxed when you file just like normal income so your roommate will now have to pay federal tax on $100,000 income (between 24% and 40% federal, depending on when it is reported and other income he/she has), and potentially state income tax, while the 'winner' got $80K tax-free instead of paying tax on $100K. Casinos are required to report gambling winnings if they exceed a certain limit ($1,200 of slot machine winnings for example).Gambling winnings get reported on the first page of your tax return on.
Lottery Winnings And Social Security
The program covers retirement pensions, disability insurance, survivor benefits, unemployment insurance. This means not everyone is entitled to social security benefits. The group of people who are entitled to it are between ages 65 and 67 all depends on the year you were born, you could be eligible at age 62 but applying at this age would reduce your social security benefits permanently, spouses. These are not the only requirements to qualify you for social security there are other important determinants for your eligibility. The number of years you worked is important too. You are assigned a number of credits for every year worked. For every $1360 earned, you are assigned one credit. What this means is depending on when you born, you would or would not be eligible for social security benefits.
For disability benefits, you might be discontinued from receiving it is you come into some money from say, the lottery, gambling etc. The receipt of this form of income does not necessarily have to be you directly, it could be your spouse. If the amount you win is more than $2000, sorry, but you do not qualify for social security benefits that month. If the amount is less, your social security benefits will be matched dollar to dollar with the amount. Whatever is left, you will be paid.
A great impact is felt on your tax returns when you win gambling than when you lose. The amount which you win gambling might seem small but the impact on your tax return are substantial. The tax which you have to pay would most likely override the amount won even your gambling losses on say, fruityslots.com,would not cover it.
You are required by law to report your gambling winnings. This is also done by the casino. Once a player exceeds the $1,200 mark on say, slots, a report is filed. Check your tax report and any amount won from gambling is on the first page.
The reporting of your gambling winnings actually cover all amounts won but in the event that the amount won exceeds the amounts listed below, they should be reported on your Form W-2G.
.$5,000 or more won in poker tournaments.
.$1,500 or more won in keno
.$1,200 or more won at slots or bingo
.$600 or more won at betting if the number of bets 300 or more. These amounts might be reduced when the wager placed by the winner is considered. It is required by law and the regulatory authorities that all amounts won gambling should be reported on your tax returns.
Gambling losses also have an impact on social security. The can be used to claim tax returns, but this applies only to when it is equal to the total amount of gambling winnings reported. They are claimed under itemized deduction. Remember that you can only successfully claim losses if all your gambling receipts and records are complete and in order. As this will be the evidence needed to make the ‘itemized deductions’. So, technicality your gambling losses are reclaimed through your gambling winnings but only to the extend that the amounts are the same.
Social Gambling Sites
According to the IRS, gambling winnings are taxable income. They only make provision for the deduction of losses. Gambling activities whose winnings will be taxed are games like poker, slots, bingo, racetrack games amongst others. Gambling winnings on a whole affect your social security hugely because whether you lose the same amount of money you win while gambling you would be paying a lot in taxes. When you win from gambling, the amount won is subjected to a 25% tax. There are certain higher amounts however which an income tax will be applied.
Most people especially retirees play the lottery. So they are concerned if this would affect their social security benefits. Well, the good news is that, your social security benefits is not affected by winning the lottery. This is because there is a social security earnings test conducted on your earnings. This worked this way. For every $2 earned, social security withholds $1 for amounts $17,640 and above as at 2019. This is applicable for workers who are not up to the full retirement age. Still, this bracket of people are concerned about the possibility of losing their benefits if they win the lottery. Good news, your benefits are safe. The lottery winnings would be taxed as required by law, but your benefits would be intact.
Gambling is fun. The possibilities for winnings are endless. You could actually win the jackpot and smile to the bank. The other arm to gambling is losing and to be honest, most people loss kore than they gain. For you as an individual who is on social security, the impact on your benefits is felt more than an individual who isn’t on social security. The soft landing you would have is the ability to report your losses when you report your winnings then the amount of losses would be deducted. This deduction isn’t carried out arbitrarily. Say, you lost $500 and won $600. The amount of losses deducted from your tax return would be $500. So, make sure you have all necessary information about your social security before you gamble.
More Articles
In the spring of 2012, the jackpot for the U.S. Mega Millions lottery reached a record-breaking $640 million. If the lucky winner of this prize opted to take a lump-sum payment, he'd immediately find his winnings slashed to $462 million. Subtract another 25 percent for federal taxes, and even more for state taxes, and the jackpot easily drops to less than half of its advertised value. While lottery winners lose a large chunk of their winnings to Uncle Sam, many are surprised to learn that they aren't required to pay Social Security taxes on these winnings.
Social Security
The U.S. Social Security program provides benefits to people who are retired or disabled. The funding for this program comes from taxes collected under the Federal Insurance Contributions Act, or FICA. As of 2012, more than 159 million workers in the U.S. pay Social Security tax on their earnings, which helps to provide benefits to more than 55 million people. While 38 million of those receiving benefits are retirees, these taxes also help to pay for benefits to the disabled. Spouses, children and dependents of workers who have passed away can also receive benefits.
FICA Rates
Employers withhold 4.2 percent of an employee's income to cover Social Security tax. The employer must also pay a certain amount of Social Security tax toward each employee. If you're self-employed, you must pay the entire amount yourself -- both the employee's and the employer's portion. Social Security tax is applied to only the first $110,100 in earnings as of 2012. Because lottery winnings aren't 'earned,' they are not subject to Social Security tax.
Income Taxes on Lottery Winnings
Even though lottery winnings are not subject to Social Security taxes, they are included as ordinary income when it comes to paying federal and state income taxes. As of 2012, winners should expect to pay at least 25 percent federal tax on their lottery winnings. State taxes vary widely by location, from 10.8 percent in New Jersey to 5 percent in states like Arizona, Maine and Illinois. Some states, like California, do not collect state income tax on lottery winnings.
Taxes on Lottery Winnings: Real-World Example
For an example of taxes paid on lottery winnings, consider railroad engineer Donald Lawson, who won the $337 million Powerball jackpot in August 2012. Lawson opted for the lump-sum payout, which reduced his total prize to $224.6 million before taxes. After paying federal and state taxes, Lawson was left with just $158.7 million.
Odds of Winning the Lottery
If the idea of paying out a huge portion of your lottery jackpot to the government leaves you seeing red, take heart; the odds that you'll ever have to pay taxes on a major lottery prize are extremely low. The odds of winning the record-breaking $640 million Mega Millions prize in 2012 were just 1 in 176 million. The odds of winning the jackpot prize in the Powerball are roughly the same. That means you're 50 times more likely to be struck by lightning, or 33 times more likely to be stung to death by bees than you are to win such a huge jackpot.
Video of the Day
References (6)
Photo Credits
- lottoschein, gewinnzahlen,wette, lotterie image by Lucky Dragon from Fotolia.com
About the Author
Emily Beach works in the commercial construction industry in Maryland. She received her LEED accreditation from the U.S. Green Building Council in 2008 and is in the process of working towards an Architectural Hardware Consultant certification from the Door and Hardware Institute. She received a bachelor's degree in economics and management from Goucher College in Towson, Maryland.