When you win, the IRS wins too.
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Winning the California lotto can quickly change your financial situation. While a small prize might not make a big difference, winning hundreds of thousands or millions of dollars puts a potentially life-changing amount of money in your pocket. You're not the only winner, either. The taxes that you'll pay can generate significant income for the government.
California Income Tax
According to the California Lottery's Winners Handbook, your winnings will be completely exempt from state and local income taxes. However, just because your winnings are exempt doesn't mean you won't end up paying taxes in the future. If
you use your winnings to buy a house or a car, you'll still have to pay property taxes and registration taxes on these items. In addition, you may have to pay gift taxes if you send extravagant presents to friends or family.
Federal Income Tax Withholding
Your lottery winnings are completely subject to federal income tax. If you give the lottery your Social Security number, the California Lottery will take out 25 percent of your winnings and send the money to the Internal Revenue Service. Without your Social Security number, it takes 28 percent. If you don't disclose your citizenship status, the lottery will withhold 30 percent.
Federal Income Tax Liability