Feel free to edit your flair to reflect whatever disability you identify as having. This doesn't have to be a medical diagnosis either. You can identify as 'Deaf,' 'wheelchair-user' or just plain 'crip,' as some folks do. And, if you don't have a disability, no worries! Just mark it up however you like. Gambling winnings Social Security benefits (portion may be taxable) Hobby income Supplemental unemployment benefits Interest Taxable scholarships and grants Interest on life insurance dividends Tips and gratuities Examples of Non-Taxable Income Aid to Families with Dependent Children (AFDC) Meals and lodging for the employer’s convenience. This hidden gambling tax can affect both lower income and higher income retirees but in different ways. For lower-income retirees, a hidden gambling tax can occur because increased MAGI increases the amount of your Social Security benefits subject to taxation and reduces your eligibility for a tax credit on health insurance.

Lottery Winnings and SSDI Benefits. The way SSDI benefits work is that if you experienced a mental or physical disability that prevents you from being able to work, and if you’ve paid your Social Security taxes while working, then SSDI will provide you with a monthly benefit payment.

In the spring of 2012, the jackpot for the U.S. Mega Millions lottery reached a record-breaking $640 million. If the lucky winner of this prize opted to take a lump-sum payment, he'd immediately find his winnings slashed to $462 million. Subtract another 25 percent for federal taxes, and even more for state taxes, and the jackpot easily drops to less than half of its advertised value. While lottery winners lose a large chunk of their winnings to Uncle Sam, many are surprised to learn that they aren't required to pay Social Security taxes on these winnings.

Social Security

The U.S. Social Security program provides benefits to people who are retired or disabled. The funding for this program comes from taxes collected under the Federal Insurance Contributions Act, or FICA. As of 2012, more than 159 million workers in the U.S. pay Social Security tax on their earnings, which helps to provide benefits to more than 55 million people. While 38 million of those receiving benefits are retirees, these taxes also help to pay for benefits to the disabled. Spouses, children and dependents of workers who have passed away can also receive benefits.

FICA Rates

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Employers withhold 4.2 percent of an employee's income to cover Social Security tax. The employer must also pay a certain amount of Social Security tax toward each employee. If you're self-employed, you must pay the entire amount yourself -- both the employee's and the employer's portion. Social Security tax is applied to only the first $110,100 in earnings as of 2012. Because lottery winnings aren't 'earned,' they are not subject to Social Security tax.

Income Taxes on Lottery Winnings

Even though lottery winnings are not subject to Social Security taxes, they are included as ordinary income when it comes to paying federal and state income taxes. As of 2012, winners should expect to pay at least 25 percent federal tax on their lottery winnings. State taxes vary widely by location, from 10.8 percent in New Jersey to 5 percent in states like Arizona, Maine and Illinois. Some states, like California, do not collect state income tax on lottery winnings.

Taxes on Lottery Winnings: Real-World Example

For an example of taxes paid on lottery winnings, consider railroad engineer Donald Lawson, who won the $337 million Powerball jackpot in August 2012. Lawson opted for the lump-sum payout, which reduced his total prize to $224.6 million before taxes. After paying federal and state taxes, Lawson was left with just $158.7 million.

Odds of Winning the Lottery

If the idea of paying out a huge portion of your lottery jackpot to the government leaves you seeing red, take heart; the odds that you'll ever have to pay taxes on a major lottery prize are extremely low. The odds of winning the record-breaking $640 million Mega Millions prize in 2012 were just 1 in 176 million. The odds of winning the jackpot prize in the Powerball are roughly the same. That means you're 50 times more likely to be struck by lightning, or 33 times more likely to be stung to death by bees than you are to win such a huge jackpot.

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Do gambling winnings affect social security

Gambling Winnings And Social Security

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About the Author

Do Gambling Winnings Affect Your Social Security Benefits

Emily Beach works in the commercial construction industry in Maryland. She received her LEED accreditation from the U.S. Green Building Council in 2008 and is in the process of working towards an Architectural Hardware Consultant certification from the Door and Hardware Institute. She received a bachelor's degree in economics and management from Goucher College in Towson, Maryland.

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Do Gambling Winnings Affect Social Security Benefits