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Aug. 19 — Pennsylvania lottery winners, watch your mailboxes. Winners of more than $600 in cash prizes will soon be notified that this year, for the first time in Pennsylvania history, they must pay taxes on their lottery winnings.
“The Lottery is notifying winners of more than $600, which is the threshold for the Lottery to report winnings to the Department of Revenue and IRS,” Kevin Hensil, spokesman for the Pennsylvania Department of Revenue, told Bloomberg BNA in an Aug. 18 e-mail.
Of the 37 states with a state lottery and a broad-based income tax, only Pennsylvania and California didn't tax lottery winnings, according to Hensil. Although the lottery will only send letters to individuals who won $600 or more, winners of monetary prizes of any amount should report the income on their Pennsylvania personal income tax returns, Hensil said.
The new tax on lottery winnings comes as part of Pennsylvania's budget and will be applied retroactively to all cash prizes awarded after Jan. 1, 2016. Lottery winners will pay a 3.07 percent personal income tax on all cash prizes.
The new tax will generate an estimated $15.8 million in new revenue in fiscal 2016-17, according to a fiscal note accompanying H.B. 1198, now Act 84 of 2016. Lottery sales in Pennsylvania topped $4.13 billion in fiscal 2015-16, according to the Pennsylvania Lottery's website.
Act 84 expanded a number of taxes in Pennsylvania, including a new tax on digital downloads, a $1 per pack increase on cigarettes and new taxes on other tobacco products, an increase in the bank shares tax, and an increase to 14 percent from 12 percent on casinos' gross table games revenue (148 DTR H-1, 8/2/16).
The new law imposes tax only on cash prizes, according to the revenue department. Non-cash prizes such as merchandise or gift cards won't be subject to tax.
The law applies to both residents and nonresidents who win the Pennsylvania Lottery, according to a fact sheet issued by the department. Past lottery winners who are receiving annuity payments on winnings that happened before 2016 will now have to pay a 3.07 percent income tax on any payments received in 2016 and beyond.
The Pennsylvania Lottery will automatically withhold income tax on winnings above $5,000 that are paid after July 12, 2016. Winners who receive monetary prizes between Jan. 1 and July 12, 2016, may need to make estimated tax payments to avoid an underpayment penalty, the department said.
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