Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 140 - INCOME TAX WITHHOLDING › Section 23VAC10-140-282 - Withholding on lottery prizes

Current through Register Vol. 40, No. 24, July 15, 2024
A. Amount to be withheld. The Lottery
				Department shall withhold Virginia income tax at the rate of 4.0% on the
				proceeds from any lottery prize in excess of $5,000. The tax shall be withheld
				on the entire amount of the prize, not merely the amount in excess of $5,000.
				The tax must be withheld by the Lottery Department on the date of actual or
				constructive payment, whichever is earlier, as defined in federal Treasury
				Regulation § 31.3402(a)-1. Constructive payment means when the amount
				awarded is credited to the account of the taxpayer or set apart for future
				withdrawals, although not actually reduced to possession.
B. Prizes subject to withholding. Withholding
				is required on (i) any payment of proceeds in excess of $5,000; (ii) any
				installment payment of $5,000 or less, if the aggregate proceeds from a wager
				exceed or will exceed $5,000 or (iii) any periodic payment of $5,000 or less,
				when payments are to be made for the life of a person (or for the lives of more
				than one person), if it is actuarially determined that the aggregate proceeds
				from a wager are expected to exceed $5,000.
The provisions of this section may be illustrated as
				  follows:
Example 1: "A" purchases a lottery ticket of $1.00 in the
				  state lottery from an authorized agent. The drawing is held and "A" wins
				  $5,000. Since the proceeds of the wager are not greater than $5,000, the
				  Lottery Department is not required to withhold or deduct any amount from "A's"
				  prizes.
Example 2: Assume the same facts as in Example 1 except that
				  "A" wins $5,001. The Lottery Department must deduct and withhold tax at a rate
				  of 4.0% from $5,000 or $200.04.
Example 3: "B" purchases a lottery ticket for $1.00 in the
				  state lottery from an authorized agent. The lottery drawing is held and "B"
				  wins the grand prize, $50,000, payable at the rate of $1,000 a month. The
				  Lottery Department must deduct and withhold at the rate of 4.0% on each monthly
				  payment.
Example 4: "C" purchases a ticket for $1.00 in the state
				  lottery from an authorized agent. The drawing is held and "C" wins $1,000 a
				  year for the rest of "C's" life. It is actuarially determined that "C's" life
				  expectancy is 10 years. Based on that determination, the proceeds from the
				  wager paid to "C" will exceed $5,000. Therefore, the Lottery Department must
				  deduct and withhold 4.0% X $1,000 = $40 from each year's payment.
C. Persons subject to withholding.
1. Residents and part-year residents. All
				persons who qualify as residents and part-year residents of Virginia as defined
				under Chapter 3 of Title 58.1 of the Code of Virginia are subject to
				withholding for lottery prizes in the amount designated in subsection A
				above.
2. Nonresidents. Withholding
				will be required for all nonresident lottery winners. Nonresidents will be
				required to file a nonresident return when Virginia gross income, including
				lottery prizes, exceeds the thresholds in § 58.1-321 of the Code of
				Virginia. Any nonresident who has become liable to his state of residence for
				income tax on Virginia source income may become eligible for a credit as
				provided in § 58.1-332 of the Code of Virginia.