Lottery Winners Will Have New Tax State Will Take 8.2 Percent Of Money Won After Dec. 31

Pam Hiatt of Boise won an $87.6 million Powerball lottery jackpot about 30 months ago. That was lucky for her in more ways than one.

If she had won it after next Thursday - the first day of 1998 - she would have had to pay an extra $359,160 in state income tax on each of the 20 pre-tax installments of nearly $4.4 million.

In the first eight years of the Idaho Lottery, winnings have been exempt from state tax. But no more.

A new law imposing state income tax of up to 8.2 percent on lottery winnings was approved by the Legislature last winter. To avoid problems caused by changing tax laws in the middle of the year, it’s not going into effect until Jan. 1, 1998.

Its key provisions are:

Only lottery winnings of $600 or more will be taxed.

No previous lottery winners will have to pay the tax.

Taxes won’t be withheld from lottery prizes until they reach the level where federal taxes have to be taken out, $5,000. But the taxes are due even if nothing is withheld from the prize.

The tax applies only to tickets purchased after Wednesday, Dec. 31, no matter when the money is received. Presumably a big Idaho Powerball winner in next Wednesday’s drawing would be exempt from the state tax.

State Rep. Mark Stubbs, R-Twin Falls, a major sponsor of the legislation, estimates the change will bring in an extra $1 million per year. The state tax on $1 million in lottery earnings would be $82,000.

The legislation allocates half the new revenue to school districts to be used in substance abuse education programs. The rest is to go to the Department of Juvenile Corrections to help meet a need for transitional facilities for wayward youth.

Dan John of the state Tax Commission feels compliance will not be a problem.

“They’ve always had to report it at the federal level,” he said. “They are not exempt there.”

State tax collectors will get reports from the Lottery Commission on any prizes of more than $600, then check to make sure winners include the windfall on their tax returns.