How Much Taxes Would Be Taken out of Fantasy 5 Winnings in California?

Winning the Fantasy 5 lottery in California can be an exciting windfall, but it’s important to understand how taxes will impact your winnings. In California, the good news is that the state does not impose any state or local taxes on lottery winnings, including Fantasy 5 prizes. However, federal taxes still apply, and the IRS requires mandatory withholding for lottery winnings over $5,000.

Federal Tax Withholding on Fantasy 5 Winnings

If you win more than $5,000 in the Fantasy 5 lottery, the California Lottery is required to withhold 24% of your winnings for federal income taxes. For example:

• If you win $100,000, the lottery will automatically withhold $24,000, leaving you with $76,000 before any additional tax liabilities.

However, this 24% withholding may not cover your total federal tax liability. Lottery winnings are considered taxable income and are added to your other earnings for the year. Depending on your total income, your winnings could push you into a higher federal tax bracket, meaning you might owe additional taxes when filing your return. Federal tax rates range from 10% to 37%, depending on income levels.

No State Taxes on Lottery Winnings in California

California stands out as one of the few states that does not tax lottery winnings. Whether you win a small prize or hit the jackpot, your Fantasy 5 winnings are exempt from state income taxes if the ticket was purchased within California.

Additional Considerations

1. Non-U.S. Residents: If you’re not a U.S. citizen or resident alien, federal withholding increases to 30% of your winnings.
2. Reporting Requirements: Even though California doesn’t tax lottery winnings, you must still report them as income on your federal tax return.
3. Tax Planning Opportunities:

• Opting for annuity payments instead of a lump sum can help spread out the tax burden over several years.
• Charitable donations or setting up trusts can also reduce taxable income.

Take-Home Amount Example

Let’s calculate an example for a $100,000 Fantasy 5 win:

• Federal withholding (24%): $24,000
• No state tax: $0
• Take-home amount after initial withholding: $76,000

If your total annual income places you in a higher federal tax bracket (e.g., 32%), you may owe additional taxes when filing your return.

While winning the Fantasy 5 in California is free from state taxes, federal taxes significantly reduce your take-home prize. The mandatory 24% withholding is just an initial deduction; depending on your overall income and filing status, you may owe more when filing your annual return. To maximize your windfall and minimize tax liabilities, consider consulting a financial advisor or tax professional.