Powerball Lottery Results: Officials Uncertain if Puerto Rico Lotto Winner Will Have to Pay Federal Tax on Jackpot Winnings
Someone in Puerto Rico is about to cash in as a Powerball winner. Lottery officials on the island are unsure if he or she will have to pay taxes though.
Whoever comes forward as Puerto Rico's first Powerball winner will come home with one-third of the $564 million jackpot.
The tax question remains on the big jackpot, however, Fox News Latino reports. Puerto Ricans have always been exempt on paying federal income tax on local income. This has been part of their tax code.
Powerball just became available on the island, which is a U.S. territory, in October 2014. Now, the island has a winner, and lottery officials have no idea what to do about the taxes.
"We asked the IRS that same question in October, but we haven't received an answer yet," said Antonio Perez Lopez, assistant secretary of the Lottery of Puerto Rico. "We are still waiting, so we don't know."
The winner in Puerto Rico is required to pay 20 percent state tax on their winnings, but the federal tax is still unknown. If they do have to pay the federal tax, at least an additional 25 percent would go to the IRS.
The question is, Where were the earnings received? Since they came from Powerball, are they "earnings received from sources outside Puerto Rico?" Or, since the ticket was purchased in Puerto Rico, are the lottery winnings considered a "local source" earning?
Gabriel Hernandez, a tax partner with the San Juan office of BDO Puerto Rico, thinks the winner is safe from federal taxes because the "source" of the income is where the person bought the ticket (Puerto Rico).
"Therefore, here it applies the maximum rate of 20 percent in Puerto Rico and tax-free for federal purposes," he said.
U.S. millionaires have found ways to take advantage of the generous tax laws in Puerto Rico. By spending at least 183 days per year on the island, they are considered "bona fide" residents and avoid paying U.S. income tax on their Puerto Rican income, Forbes reports.
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