SN 92(9)

Income Tax Withholding on Certain Gambling Winnings

This publication has been obsoleted by AN 2001(6); 
modified and superseded by IP 2001(28) and IP 2001(29)

BACKGROUND: On November 13, 1991, the Department issued SN 91 (18) to describe the requirement to withhold Connecticut income tax from certain gambling winnings paid to residents of this state. A paragraph of SN 91 (18) that is captioned "WITHHOLDING UPON CHANGE OF RESIDENCE" provided that, where winnings were paid in installments (e.g., a lottery prize funded by an annuity), payments made to a payee who was a resident at the time of winning but who subsequently became a nonresident ceased to be subject to Connecticut income tax withholding once the winner provided proof of change of residence on a form prescribed by the Department of Revenue Services. Conversely, payments made to a payee who was a nonresident at the time of winning but who subsequently became a resident became subject to Connecticut income tax withholding. On February 10, 1992, Temporary Rules under the Income Tax Act were issued. Temporary Rules 68 (c) (1) -1, 68 (c) (2) -1, 68 (c) (3) -1 and 68 (c) (4) -1 address the issue of special accruals required to be made by a part-year resident with respect to income, such as gambling winnings, paid in installments.

PURPOSE: This Special Notice modifies and supersedes the provisions of SN 91 (18) with respect to the requirement to withhold Connecticut income tax from certain gambling winnings paid in installments (e.g., a lottery prize funded by an annuity) where a payee who was formerly a resident has become a nonresident or a payee who was formerly a nonresident has become a resident.

EFFECTIVE DATE: Applicable to installments of gambling winnings paid on or after the date of issuance of this Special Notice.

STATUTORY AUTHORITY: 1991 Conn. Pub. Acts 3, §§68 and 92 (June Spec. Sees.), the latter of which sections expressly authorizes the issuance of Temporary Rules 68 (c) (1) -1, 68 (c) (2) -1, 68 (c) (3) -1 and 68 (c) (4) -1.

GAMBLING WINNINGS PAID IN INSTALLMENTS SUBJECT TO SPECIAL ACCRUALS: Pursuant to 1991 Conn. Pub. Acts 3, §68 (June Spec. Sess.), special accruals are required to be made by a person who is a part-year resident.

A person is a part-year resident in the taxable year that the person changes his or her residence status from a resident of this state to a nonresident of this state, or from a nonresident of this state to a resident of this state.

Ordinarily, gambling winnings paid in installments (e.g., a lottery prize funded by an annuity) would be subject to these special accrual requirements.

SPECIAL ACCRUALS NOT TO BE MADE ON GAMBLING WINNINGS PAID IN INSTALLMENTS TO PERSONS WHO WERE PART-YEAR RESIDENTS IN A TAXABLE YEAR COMMENCING PRIOR TO JANUARY 1, 1991: Special accruals are not to be made by a person who was a part-year resident in a taxable year commencing prior to the effective date of the Connecticut Income Tax Act. For a person whose accounting period for federal income tax purposes is the calendar year, this means that special accruals are not required to be made if the person was a part-year resident in a calendar year prior to 1991.

EFFECT ON WITHHOLDING: The provisions of SN 91 (18) on withholding on gambling winnings paid in installments to a payee who was a part-year resident in a taxable year commencing prior to January 1, 1991 remain the same.

Payments made to a payee who was a resident at the time of winning but who subsequently becomes a nonresident cease to be subject to Connecticut income tax withholding once the winner provides proof of change of residence on a form prescribed by the Department of Revenue Services.

Payments made to a payee who was a nonresident at the time of winning but who subsequently becomes a resident become subject to Connecticut income tax withholding.

SPECIAL ACCRUALS ARE TO BE MADE ON GAMBLING WINNINGS PAID IN INSTALLMENTS TO PERSONS WHO WERE PART-YEAR RESIDENTS IN A TAXABLE YEAR COMMENCING ON OR AFTER JANUARY 1, 1991: Special accruals are to be made by a person who was a part-year resident in a taxable year commencing after the effective date of the Connecticut Income Tax Act. For a person whose accounting period for federal income tax purposes is the calendar year, this means that special accruals are required to be made if the person was a part-year resident in a calendar year 1991 or later.

EFFECT ON WITHHOLDING: The provisions of SN 91 (18) on withholding on gambling winnings paid in installments to a payee who was a part-year resident in a taxable year commencing on or after January 1, 1991 are modified and superseded.

Payments made to a payee who was a resident at the time of winning but who subsequently becomes a nonresident are subject to Connecticut income tax withholding, unless the payee furnishes to the payer a certification from the Department of Revenue Services that the payee has complied with the special accrual requirements of Rule 68 (c) (1) -1. Those requirements require the payee, on his or her Form CT-1040NR/PY (Connecticut Nonresident/Part-Year Resident Income Tax Return), to accrue the unpaid installments to the portion of the year prior to his or her change of status from a resident to a nonresident.

If the gambling winnings are Connecticut lottery winnings paid by the Connecticut Division of Special Revenue, a payee may elect relief under Rule 68 (c) (4) -1 from the special accrual requirements (but only with respect to those same Connecticut lottery winnings) by allowing Connecticut income tax withholding to continue on the winnings and attaching to his or her Form CT-1040NR/PY for each succeeding taxable year in which installments are paid verifiable information from the Division of Special Revenue that shows the proper amount of Connecticut income tax withheld.

Payments made to a payee who was a nonresident at the time of winning and has subsequently becomes a resident do not become subject to Connecticut income tax withholding. The special accrual requirements of Rule 68 (c) (2) -1 require the payee, on his or her Form CT-1040NR/PY (Connecticut Nonresident/Part-Year Resident Income Tax Return), to accrue the unpaid installments to the portion of the year prior to his or her change of status from a nonresident to a resident. The accrued installments will not be includable in such person's Connecticut adjusted gross income (even though includable in such person's federal adjusted gross income) for any subsequent taxable period.

EFFECT ON OTHER DOCUMENTS: The paragraph of Special Notice 91 (18) that is captioned "WITHHOLDING UPON CHANGE OF RESIDENCE" is modified and superseded with respect to withholding on gambling winnings paid in installments to a payee who is a part-year resident in a taxable year commencing on or after January 1, 1991 and may not be relied upon after the date of issuance of this Special Notice.

SN 92(9)
Income Tax
Issued 4/9/92