Arizona lottery winnings are generally taxable for both federal and Arizona income tax purposes. Arizona individual income tax begins with federal adjusted gross income (AGI), so lottery winnings included in federal AGI are generally included in Arizona taxable income unless a subtraction is specifically authorized under Arizona law.
Key Points on Arizona Lottery Winnings Taxation
- Federal and State Taxability: Lottery winnings are generally taxable at both the federal and Arizona state levels. Because Arizona uses federal adjusted gross income (AGI) as the starting point for calculating Arizona taxable income, lottery winnings included in federal AGI are generally taxable for Arizona purposes unless a specific subtraction is provided by law.
- Arizona Subtraction Rules: Arizona taxable income is determined by applying the additions and subtractions authorized by Arizona law to federal adjusted gross income (AGI). Taxpayers should review the current year's Arizona Form 140 instructions to determine whether any Arizona-specific subtraction or adjustment applies to their situation.
- Reporting Requirements: Resident taxpayers must report lottery winnings that are included in their federal adjusted gross income (AGI) on Arizona Form 140 (Resident Personal Income Tax Return). These winnings are included in income before Arizona additions, subtractions, deductions, exemptions, credits, and other applicable tax adjustments are applied.
- Withholding: Federal income tax may be withheld from certain lottery winnings in accordance with Internal Revenue Service (IRS) requirements. Arizona income tax may also be withheld from lottery or gambling winnings that are subject to Arizona withholding requirements. Taxpayers should report any federal and Arizona income tax withheld, as shown on Form W-2G, when filing their tax returns.
Important Notes
- Lottery winnings must be included in income if they are taxable for federal income tax purposes.
- Arizona taxable income begins with federal adjusted gross income (AGI) and is then adjusted by the additions and subtractions authorized under Arizona law.
- Taxpayers should retain Form W-2G and any other records related to lottery or gambling winnings and withholding. These documents are used to report winnings and claim any federal or Arizona income tax withheld.
Source:
Form 140
Disclaimer: Always verify with the current year’s Federal and State Department of Revenue Forms and Instructions. Tax laws may change, and individual circumstances may require professional advice from a CPA or tax attorney.