• Social Security Benefits By State
• Casino Winnings And Social Security

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 Benefits By State

Social Security Benefits as Inheritance Social Security isn’t like a 401k or other retirement savings. It isn’t part of your estate, so it does not pass on to your children or spouse automatically as part of their inheritance. Good news: Lottery winnings aren't subject to the Social Security earnings test, so your jackpot won't reduce your benefits. But like other high-income households, you may have to pay bigger Medicare Part B premiums at age 65. The top premium in 2019 will be $460.50 per month.

1. Mar 08, 2016  Do gross gambling winnings affect social security benefits.? Gambling winnings would NOT affect the amount of social security benefits. If you are below full retirement age - your social security benefits MIGHT be reduced - but that is ONLY based on earned income - wages and social security. Gambling winnings are not earned income - and are not reported to the SSA.
2. Many people continue to work beyond retirement age, either by choice or out of necessity. But if you are receiving Social Security benefits, you need to be aware of how working can affect your benefit payments. Earning income above Social Security thresholds can cause a reduction in benefits and mean your benefits will be taxed.
3. Gambling winnings are not 'earned income,' and they don't count against the limit for reducing your Social Security payments.

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.

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Casino Winnings And Social Security

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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.

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