If you owe substantial back taxes to the state and federal gov. and then win a lottery how is it handled?

Question

I know someone who owes a couple hundred thousand in back taxes and hit on the lottery for approx. 250,000.

Answer 1

Their debt to society will be paid off.

Of course they owe tax on the 250k as well, so they may not cover their debt.

You need better friends, this one is a low life.

Answer 2

My best guess is that the federal government will take out the taxes on the 250,000 that was just won AND expect (or even take) payment of the rest of the money to cover the back taxes. Depending on what the person owes in back taxes they probably won't ever actually SEE any of the money they just won.

Answer 3

If you win a large amount of money from a lottery, you will undergo a credit and background check.  If you owe money to the state or IRS, it will be deducted from your winnings.  Also, they will deduct for many other debts, such as back child support, court judgements, Fines, etc...

Your friend won't get anything, in fact he will still owe money since the state will take out around 40% of the winnings to cover taxes on the winnings.

If he tries to have a friend cash in the winning ticket and split the money, he could be in even bigger trouble.

If he gets a good tax lawyer, he might even be able to get a settlement on the remaining balance.

Answer 4

If there are tax levies filed against the taxpayer, I would think they would be paid off first before he gets any of his winnings.  They always take out taxes due first and the winner gets the remaining funds, if any.

Answer 5

Nothing happens directly, although if the person has any sense at all they'd apply most of the winnings to what they owe.  Of course, if they had good sense they wouldn't be $200K in debt to the IRS in the first place.

The IRS can levy bank accounts to get the money the person owes.

And the IRS WILL find out about the win, since the person will get a 1099 for it and the IRS will also get that info.  And the person needs to be aware that even though tax is withheld from the winnings, the withholding might not be enough to cover what they'll owe on it.

Answer 6

Tell him to give me the lottery ticket!

Answer 7

a potential lein ay be placed on your winnings which will allow for all back taxes to be defrayed or your could take it upon yourself and contact the IRS and whatever state you may owe taxs to and pay the to avoid this hassle