DRS: IP 2001(28), Connecticut Income Tax Treatment of State Lottery Winnings

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

This Informational Publication has been modified and superseded by IP 2002(18)

IP 2001(28)

Connecticut Income Tax Treatment of State Lottery Winnings


Purpose: The purpose of this Informational Publication is to answer frequently-asked questions about the Connecticut income tax treatment of State Lottery winnings (including Connecticut Lottery winnings).  (Frequently-asked questions about gambling winnings other than State lottery winnings are answered in Informational Publication 2001(29), Connecticut Income Tax Treatment of Gambling Winnings Other Than State Lottery Winnings.)


Effective Date:  This publication is effective for taxable years beginning on or after January 1, 2001.


Statutory Authority: Conn. Gen. Stat. ßß12-700 to 12-746, as amended by 2001 Conn. Pub. Acts 6, ß37 (June Spec. Sess.).


Definitions:

DRS means the Department of Revenue Services.

the IRS means the Internal Revenue Service.

Gambling winnings means and includes proceeds from a wager placed in a sweepstakes, wagering pool, or lottery (other than State-conducted lottery); or proceeds from a wagering transaction (including a wagering transaction in a paramutual pool with respect to horse races, dog races, or jai alai.)  Gambling winnings also include door prizes, contest prizes, and prizes from raffles or similar drawings.  Gambling winnings do not include State Lottery winnings.

Connecticut Lottery winnings means lottery winnings from a wager placed in the Connecticut Lottery, where the wager is placed with the Connecticut Lottery Corporation or with its authorized employees or ticket agents.  Connecticut Lottery winnings include Powerball winnings, if the Powerball ticket was purchased from a Connecticut Lottery ticket agent.

State-conducted lottery means a lottery conducted by an agency of a State acting under authority of State law, but only if the wager is placed with the State agency conducting such lottery, or with its authorized employees or agents.  State-conducted lottery includes the Connecticut Lottery conducted by the Connecticut Lottery Corporation, a public instrumentality of the State of Connecticut.

State Lottery winnings means lottery winnings from a wager placed in a State-conducted lottery, where the wager is placed with the State agency conducting the lottery, or with its authorized employees or agents.  State Lottery winnings include Connecticut Lottery winnings.

Proceeds from a wager means the amount determined by reducing the amount received from a winning wager by the amount of the wager. The withholding of federal or state income taxes, when required, does not affect the calculation of the proceeds from a wager.  Also, if a person makes multiple wagers, the proceeds from each wager are calculated separately.  For example, if a person purchases 500 Connecticut Lottery tickets (at $1.00 apiece) for the same drawing, and one of the 500 tickets wins $5,500, the amount of the proceeds from the winning wager is determined by reducing the amount received ($5,500) by the amount of the wager ($1). The amount of the proceeds from each other wager is $0.


1. Are Connecticut Lottery winnings subject to Connecticut income tax?

If a winner is a resident and meets the gross income test (below), Connecticut Lottery winnings are, to the extent includable in the winnerís federal adjusted gross income, subject to Connecticut income tax.

If a winner is a nonresident of Connecticut (ďnonresidentĒ) or part-year resident and meets the gross income test (below), Connecticut Lottery winnings are, to the extent includable in the winnerís federal adjusted gross income, subject to Connecticut income tax as long as the proceeds from the wager exceed $5,000.

If a winner is an individual who is, for federal income tax purposes, a nonresident alien and meets the gross income test (below), Connecticut Lottery winnings are, to the extent includable in the winnerís federal adjusted gross income, subject to Connecticut income tax as long as the proceeds from the wager exceed $5,000.

(For information on whether an individual is a resident, nonresident, or part-year resident, see the instructions to the Connecticut income tax return for residents (Form CT-1040, Form CT-1040EZ, or Connecticut Telefile Tax Return) or the Connecticut income tax return for nonresidents or part-year residents (Form CT-1040NR/PY).)

Gross income test

The winner must file a Connecticut income tax return and report his or her gambling winnings if the winnerís gross income exceeds:

  • $12,000 and the winnerís filing status for Connecticut income tax purposes is Married Filing Separately;
  • $12,500* and the winnerís filing status for Connecticut income tax purposes is Single;
  • $19,000 and the winnerís filing status for Connecticut income tax purposes is Head of Household; or
  • $24,000 and the winnerís filing status for Connecticut income tax purposes is Married Filing Jointly.

*This amount will be $12,750 for the 2002 taxable year; $13,000 for the 2003 taxable year, $13,500 for the 2004 taxable year, $14,000 for the 2005 taxable year, $14,500 for the 2006 taxable year, and $15,000 for the 2007 and subsequent taxable years.

A winnerís gross income includes all income received in the form of money, goods, property, and services that is not exempt from federal income tax, and any additions that are required to be reported on Form CT-1040, Schedule 1.  Gross income includes, but is not limited to, compensation for services, including wages, fees, commissions, taxable fringe benefits, and similar items; gross income from a business; capital gains; interest and dividends; gross rental income; gambling winnings; alimony; taxable pensions and annuities; prizes and awards; income from partnerships, S corporations, estates, and trusts; individual retirement account distributions; unemployment compensation; and federally taxable Social Security benefits.

If a winnerís gross income does not exceed the applicable gross income threshold, and Connecticut income tax has been withheld from his or her Connecticut Lottery winnings, the Connecticut income tax will not be refunded to the winner unless he or she files a Connecticut income tax return.

2.  Are gambling losses deductible? 

Gambling losses are not deductible for Connecticut income tax purposes even though, in certain circumstances, they are deductible for federal income tax purposes.  (A winner must include gambling winnings in his or her federal gross income but may deduct gambling losses from his or her federal adjusted gross income (i) if he or she itemizes deductions for federal income tax purposes (on federal Form 1040, Schedule A), (ii) if the losses are properly documented, and (iii) to the extent the losses do not exceed his or her gambling winnings.)

3.  Are State Lottery winnings other than Connecticut Lottery winnings subject to Connecticut income tax?

If a winner is a Connecticut resident, and meets the gross income test (above), State lottery winnings are subject to Connecticut income tax to the extent includable in the winnerís federal adjusted gross income.  If the resident is required to file an income tax return and to pay income tax to the other state, he or she is eligible to claim a credit against his or her Connecticut income tax for income tax paid to the other State on those State Lottery winnings as long as the proceeds from the wager exceed $5,000.

If a winner is a part-year resident, and meets the gross income test (above), State lottery winnings are subject to Connecticut income tax to the extent includable in the winnerís federal adjusted gross income.  If the part-year resident is required to file an income tax return and to pay income tax to the other state, he or she is eligible to claim a credit against his or her Connecticut income tax for income tax paid to the other State on those State Lottery winnings as long as the proceeds from the wager exceed $5,000, and on the portion of the State Lottery winnings that is received during the residency portion of his or her taxable year.

If a winner is a nonresident, the winnerís State Lottery winnings (other than Connecticut Lottery winnings) will not be subject to Connecticut income tax.

4.  Will Connecticut income tax be withheld from Connecticut Lottery winnings?

Connecticut income tax will be withheld from a payment of Connecticut Lottery winnings if the payment is subject to federal income tax withholding*; or, if made to an individual who is, for federal income tax purposes, a nonresident alien, as long as the proceeds from the wager exceed $5,000.

*A payment of State Lottery winnings is currently subject to federal income tax withholding only if the proceeds from the wager exceed $5,000.

The fact that federal and Connecticut income tax may have been withheld from a winnerís winnings does not excuse the winner from filing a federal income tax return or a Connecticut income tax return.

Connecticut income tax will not be withheld from State Lottery winnings other than Connecticut Lottery winnings.

5.   Is a winner required to provide his or her name, address, and Social Security Number to State Lottery officials?

Yes. A winner is required by federal law to complete federal Form W-2G, Certain Gambling Winnings, by providing his or her name, address, and Social Security Number, and by signing the declaration of the form, under penalties of perjury, that the information provided is correct.

6.   How is a winnerís residency status determined? 

The Connecticut Lottery Corporation determines the residency status of a winner based upon the address furnished and the identification provided by the winner at the time federal Form W-2G is completed. The Connecticut Lottery Corporation is required to obtain two forms of identification from the winner, including, but not limited to, a Social Security card or a driverís license.

7.  What if there is more than one winner?

If more than one person is entitled to a share of the winnings, one federal Form 5754, Statement by Person(s) Receiving Gambling Winnings, must be completed, identifying each of the persons entitled to a share. Federal Form 5754 is also used when the recipient is not a person entitled to a share.  This form will list the name, address, and taxpayer identification number of all persons entitled to any payment of the winnings. The form must be signed, under penalties of perjury, by the person (or persons) receiving the winnings. The payer will use the information on federal Form 5754 to prepare federal Form W-2G for each of the winners. A copy of federal Form 5754 must be retained by the Connecticut Lottery Corporation.  A copy of federal Form 5754 need not be submitted to DRS by the Connecticut Lottery Corporation, but must be made available upon request.  If the person receiving the winnings is unable to properly identify any of the persons entitled to a share of the winnings or their state of residence, the amount of the winnings applicable to such other person shall be considered as having been won by a resident of Connecticut and Connecticut income tax must be deducted and withheld from such winnings.

8.  Could a nonresident who receives $5,000 or less in Connecticut Lottery winnings be subject to Connecticut income tax?

Yes.  There are circumstances where a nonresident who receives $5,000 or less in Connecticut Lottery winnings will be subject to Connecticut income tax if the proceeds from a wager exceed $5,000.

  • More than one winner.  The fact that more than one person may be entitled to the proceeds from a wager does not affect the manner of determining the proceeds from a wager.  For example, assume two nonresidents purchase a single Connecticut Lottery ticket for $1.00 (with each contributing an equal amount of the ticket price), and the ticket wins $8,000.  The amount of the proceeds from the wager is determined by reducing the amount received ($8,000) by the amount of the wager ($1).  The amount of the proceeds from the wager is $7,999.  Even though each winner will receive $4,000, the proceeds from the wager exceed $5,000.  Each of the two winners will be subject to Connecticut income tax on the $4,000 received.

  • Payment in installment of $5,000 or less.  The fact that the proceeds from a wager may be payable in more than one installment or in more than one taxable year does not affect the manner of determining the proceeds from a wager.  For example, assume a nonresident purchases a Connecticut Lottery ticket for $1.00, and the ticket wins $15,000, to be paid in five equal annual installments.  The amount of the proceeds from the wager is determined by reducing the amount received ($15,000) by the amount of the wager ($1).  The amount of the proceeds from the wager is $14,999.  Even though the winner will receive $3,000 annually for five years, the proceeds from the wager exceed $5,000. The winner will be subject to Connecticut income tax on the $3,000 received each year.

9.  Could a nonresident who receives more than $5,000 in Connecticut Lottery winnings not be subject to Connecticut income tax?

Yes. A nonresident who receives more than $5,000 in Connecticut Lottery winnings will not be subject to Connecticut income tax if the proceeds from any winning wager placed in the Connecticut Lottery do not exceed $5,000.

  • Multiple winning tickets, but in no instance does the proceeds from a wager exceed $5,000.  The fact that a winner may receive more than $5,000 does not necessarily mean that he or she is subject to Connecticut income tax.  For example, assume a nonresident purchases Connecticut Lottery tickets regularly, and, on more than one occasion, a ticket wins, but on no occasion does the amount of the proceeds from a wager exceed $5,000.  Even though the winner may have received more than $5,000 from wagers placed in the Connecticut Lottery, in no instance do the proceeds from any one winning wager exceed $5,000. The winner will not be subject to Connecticut income tax on the amount received.

10.  Will payments of State Lottery winnings be reported to DRS?

Connecticut Lottery winnings are required to be reported to the IRS by the Connecticut Lottery Corporation if the winnings are $600 or more, and at least 300 times the amount of the wager.  Whenever Connecticut Lottery winnings are required to be reported to the IRS, the winnings are required to be reported to DRS (by providing a duplicate of the federal Form W-2G furnished to a winner).  The fact that Connecticut Lottery winnings may not have been required to be reported to the IRS by the Connecticut Lottery Corporation does not excuse a winner from reporting those winnings for federal and Connecticut income tax purposes.

State Lottery winnings (other than Connecticut Lottery winnings) are required to be reported to the IRS by State Lottery officials if the winnings are $600 or more, and at least 300 times the amount of the wager.  While the State Lottery officials of other States will not report State Lottery winnings to DRS, the IRS will provide information about the State Lottery winnings of Connecticut residents to DRS.   The fact that State Lottery winnings (other than Connecticut Lottery winnings) may not have been required to be reported to the IRS does not excuse a winner who is a resident from reporting those winnings for federal and Connecticut income tax purposes.


Effect on Other Documents:  That portion of Special Notice 92(9), Income Tax Withholding on Certain Gambling Winnings pertaining to Connecticut Lottery winnings is modified and superseded and may not be relied upon on or after the date of issuance of this Informational Publication.


Effect of This Document: An Informational Publication is a document issued by DRS that addresses frequently-asked questions about a current position, policy, or practice, usually in a less technical question and answer format.


For Further Information: Please call DRS during business hours, Monday through Friday:

  • 1-800-382-9463 (toll-free within Connecticut), or
  • 860-297-5962 (from anywhere).
  • TTY, TDD, and Text Telephone users only may transmit inquiries 24 hours a day by calling 860-297-4911.

Forms and Publications: Forms and publications are available all day, seven days a week:

  • Internet: Preview and download forms and publications from the DRS Web site: http://www.ct.gov/drs, or
  • Telephone: Call 860-297-4753 (from anywhere), or 1-800-382-9463 (toll-free within Connecticut) and select Option 2 from a touch-tone phone.

IP 2001(28)
Income Tax
Lottery Winnings
Issued:  1/25/2002