Tax Type
General Provisions
Description
Virginia State Lottery Winnings
Topic
Taxable Income
Date Issued
09-26-1988
Virginia State Lottery Winnings
Legislation creating the Virginia State Lottery impacts state taxation in the following two areas:
- Individual Income Tax Subtraction: § 58.1-322 of the Code of Virginia provides an individual income tax subtraction for prizes awarded by the State Lottery Department of less than $600.
- Withholding Requirements: § 58.1-460 of the Code of Virginia requires the withholding of state income tax for prizes awarded by the State Lottery Department in excess of $5,000.
In addition, as provided by § 58.1-4026 of the Code of Virginia, lottery winnings will be subject to the provisions of the Set-Off Debt Collection program.
INDIVIDUAL INCOME TAX SUBTRACTION
For purposes of computing Virginia taxable income, individuals will be allowed to subtract, to the extent included in federal adjusted gross income, lottery prizes of less than $600. No subtraction is allowed for the first $599 of a prize of $600 or more.
WITHHOLDING REQUIREMENTS
The State Lottery Department will be required to withhold state income tax on any prize in excess of $5,000, including prizes won by nonresidents. Emergency Virginia Regulation 630-6-4006 has been adopted to require the State Lottery Department to withhold 4% of any lottery winning in excess of $5,000 and report this amount to the Virginia Department of Taxation on Internal Revenue Service Form W-2G.
IMPORTANT REMINDER ESTIMATED TAXES
While prizes of $5,000 or less will not be subject to withholding, individuals will be required to pay estimated tax if their estimated tax liability on all income subject to state taxation exceeds their withholding and tax credits by more than $150. While lottery prizes in excess of $5,000 are subject to the flat 4% withholding rate, taxpayers with other income subject to state taxation will be required to pay estimated tax if their estimated tax liability exceeds their total withholding and tax credits by more than $150. All taxpayers who receive lottery winnings subject to state taxation must file a declaration of estimated tax if so required. Failure to pay at least 90% of the actual tax liability throughout the year by withholding and installments of estimated tax, except in those circumstances provided by law, will result in the assessment of an addition to tax for the underpayment of estimated tax.
If you have any questions on the application of the income tax and withholding requirements to a lottery winning, please feel free to call the Department of Taxation or write us at P. O. Box 6-L, Richmond, Virginia 23282.
Rulings of the Tax Commissioner