Administrative Code

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Virginia Administrative Code
Title 23. Taxation
Agency 10. Department of Taxation
Chapter 140. Income Tax Withholding

23VAC10-140-282. Withholding on lottery prizes.

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.

Statutory Authority

§§ 58.1-203 and 58.1-4006(B)(1) of the Code of Virginia.

Historical Notes

Derived from VR630-6-4006 § 3, eff. November 21, 1990.

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