Auto Lottery Tax Compliance Laws Quiz

1. What is the federal tax withholding rate for raffle prizes exceeding $5,000?

• 24%
• 30%
• 20%
• 28%

2. What form must an exempt organization use to report and send withheld amounts to the IRS?

• Form W-2G
• Form 945
• Form 1040
• Form 1099

3. What information must be furnished to an exempt organization if the recipient of the winnings is not the actual winner?

• The recipient must provide a copy of their driver`s license.
• The recipient must submit a tax return from the previous year.
• The recipient must furnish the exempt organization information listed on Form 5754.
• The recipient must give proof of residency in their state.

4. How long must an exempt organization keep Form 5754 for IRS inspection?

• Five years
• Three years
• Four years
• Two years

5. What is the deadline for an exempt organization to file Forms W-2G with the IRS?

• March 15 of the year after the raffle.
• January 15 of the following year.
• The last day of February of the year after the year of the raffle.
• December 31 of the current year.

6. How must an exempt organization issue Forms W-2G to prize recipients?

• By January 31 of the year after the year of the raffle.
• By December 31 of the year of the raffle.
• By March 15 of the year after the year of the raffle.
• By February 15 of the year after the year of the raffle.

7. What is the purpose of Form 5754 in the context of raffle winnings?

• To provide the exempt organization with the necessary information to file Forms W-2G.
• To claim a raffle prize as a tax deduction.
• To calculate the total prize pool for the raffle.
• To report the total number of raffle participants.

8. What happens if an exempt organization fails to withhold correctly from raffle prizes?

• The organization is liable for the tax.
• The winner has to pay all taxes.
• The tax obligation shifts to the state.
• The organization is fined but not liable.

9. How is the withholding tax calculated for raffle prizes?

• The withholding tax is 15% of the winnings multiplied by the wager amount.
• The withholding tax is 30% of the prize amount plus the wager cost.
• The withholding tax is 25% of the winnings minus the wager cost.
• The withholding tax is 20% of the total winnings regardless of wager cost.

10. What is the grossed-up prize formula if the organization pays the withholding tax on behalf of the winner?

• The organization must pay withholding tax of 15% of the gross prize.
• The organization must pay withholding tax of 25% of the prize amount.
• The organization must pay withholding tax of 33.33% of the prize’s fair market value.
• The organization must pay withholding tax of 20% of the prize’s total payout.

11. What information must be reported in box 1 of Form W-2G if the organization pays the withholding tax on behalf of the winner?

• The total cash prize awarded to the winner.
• The net amount received by the winner after taxes.
• The grossed-up amount of the prize (fair market value of prize plus amount of taxes paid on behalf of winner).
• The prize value minus the state tax withholding.

12. What information must be reported in box 2 of Form W-2G if the organization pays the withholding tax on behalf of the winner?

• The fair market value of the prize.
• The withholding tax.
• The grossed-up amount of the prize.
• The total amount paid to the winner.

13. How is the withholding tax calculated if the organization pays the withholding tax on behalf of the winner?

• The withholding tax is 33.33% of the prize’s fair market value.
• The withholding tax is 15% of the total prize amount.
• The withholding tax is a flat rate of $1,000.
• The withholding tax is 25% of the actual winnings.

14. What form must an organization use to report and send withheld amounts to the IRS if it pays the withholding tax on behalf of the winner?

• Form W-2G
• Form 945
• Form 1040
• Form 8821

15. What is the purpose of using Form 945 in the context of raffle winnings?

• To track ticket sales and purchases.
• To report and send withheld amounts to the IRS.
• To manage prize distribution processes.
• To apply for lottery licensing.

16. What is the tax rate for federal income tax withholding on lottery and certain types of gambling winnings exceeding $5,000?

• 30%
• 24%
• 15%
• 20%

17. What form will the payer send to the winner showing the amount paid and the federal tax withheld?

• Form W-2G
• Form 1099
• Form 945
• Form 1040

18. What is the deadline for the payer to issue Form W-2G to the winner?

• March 1 of the year after the year of the raffle.
• February 15 of the year after the year of the raffle.
• December 31 of the year of the raffle.
• January 31 of the year after the year of the raffle.

19. How are lottery winnings taxed at the state level?

• Lottery winnings are taxed as capital gains, not income.
• Lottery winnings are not taxed at the state level in any region.
• Lottery winnings are taxed as income at the state and local level, and the tax rate varies by location.
• Lottery winnings are taxed only at the federal level, not state or local.

20. Which states do not levy income tax or tax lottery winnings?

• New York
• Florida
• Illinois
• California

21. What is the purpose of Form 502D in Maryland?

• To claim a refund on state income tax.
• To apply for a lottery license in Maryland.
• To report and pay the tax on lottery and gambling winnings exceeding $500.
• To register for a tax identification number.

22. What happens if you fail to pay the estimated tax due or report the income in Maryland?

• You will be banned from playing the lottery.
• You may be assessed a penalty and interest charges.
• You will receive a refund of your taxes.
• You can ignore all tax obligations.

23. How are gambling losses deductible in the United States?

• Gambling losses are fully deductible without limits.
• Gambling losses are deductible as business expenses regardless of winnings.
• Gambling losses are deductible only as itemized deductions, and they are only deductible up to the amount of gambling winnings.
• Gambling losses cannot be deducted at all.

24. What documentation should be maintained for gambling losses?

• A detailed diary noting the date, place, amount, and type of loss.
• A verbal statement from friends who were present.
• An email confirmation of the winnings.
• Only a receipt from the gambling establishment.

25. What is the tax treatment of foreign lottery and gambling winnings?

• Foreign gambling winnings are tax-free.
• Foreign gambling winnings are exempt from reporting to the IRS.
• Foreign lottery winnings are only taxable in the country won.
• Foreign lottery winnings are taxable and must be included on your federal return.

26. How are lottery winnings reported on a tax return?

• Lottery winnings are reported as `Other income` on Form 1040, Schedule 1.
• Lottery winnings are reported as tax-exempt income on Form 990.
• Lottery winnings are reported as capital gains on Schedule D.
• Lottery winnings are reported as business income on Schedule C.

27. What happens if you take lottery winnings in annual installments?

• You receive the full amount tax-free at once.
• You only report each year’s installment as income for that year.
• You must pay all taxes upfront regardless of the installment plan.
• You do not report any income until the final installment is received.

28. What is the federal tax rate that may apply to lottery winnings?

• 30%.
• 40%.
• Up to 37%.
• 15%.

29. What is the purpose of withholding tax on lottery and certain types of gambling winnings?

• To ensure that the winner pays their federal income tax liability.
• To discourage people from playing the lottery.
• To simplify tax filing for the winner.
• To provide funding for state budgets.

30. What happens if the withholding tax is not enough to cover the federal tax bill?

• The winner is exempt from all taxes.
• The winner must donate the winnings to charity.
• The winner may have to make estimated tax payments and may be assessed a penalty if they fail to do so.
• The winner will receive a tax refund automatically.