Do you have to pay taxes on lottery winnings? Yes, absolutely. Lottery winnings must be reported on your tax return and are fully taxed by the IRS and most state governments.
So if you win the lottery, don’t rush out and spend it all! It’s important to understand how the IRS and your state treat these winnings to avoid any unpleasant surprises when it comes time to pay taxes.
In this article, we’ll break down how lottery winnings are taxed, what factors affect the taxes you owe, and what options you have to get your money in the most beneficial way possible.
Read on to stay informed and make the most of your winnings!
How are lottery taxes calculated in the U.S?
Winning the lottery is exciting, but it also comes with some tax responsibilities. In the U.S, lottery winnings are subject to taxes, and it’s important to know how they’re calculated to avoid surprises. Here’s a breakdown of the most important things to keep in mind.
First, any prize you win, whether it’s cash or merchandise (such as appliances, vacations, or cars), must be reported to the IRS. The organization that pays the prize will send you a Form W-2G, “Certain Gambling Winnings,” and will also report it to the IRS.
It is your responsibility to report all lottery and gambling winnings as “Other income” on your Form 1040-SR, Schedule 1 , even if you didn’t receive a W-2G.
What affects taxes on lottery winnings?
The exact amount of taxes you’ll pay depends on several factors:
1. The amount of the prize
The larger the prize, the more taxes you’ll owe. If your winnings exceed $5,000, the lottery agency withholds 24% of your winnings immediately for the IRS.
2. State where you bought the ticket
Tax laws vary from state to state. Some states, like Florida and Texas, have no state taxes on lottery winnings, while others have tax rates as high as 10.9%.
3. Your tax bracket
Your lottery winnings are added to your total taxable income, which can push you into a higher tax bracket. Most lottery winners end up in the 24% bracket, but if your annual income is high, you could be pushed into the 32% or even 37% tax bracket.
4. Method of receiving winnings
Lottery winners generally have two options for receiving their winnings: a lump sum or an annuity. The method you choose can affect the taxes you’ll owe.
How much do you actually get after lottery taxes??
If you win more than $5,000 in the lottery, the IRS automatically withholds 24% of your winnings before you even see the money. This means that percentage never hits your bank account-it’s taken by the Lottery for federal taxes.
For example, if you match the winning Powerball numbers and win $50,000, the federal tax withholding would be $12,000 (24%). This leaves you with $38,000, not including any state taxes you may owe depending on where you live.
In addition to this withholding, you’ll also have to report your lottery winnings on your annual tax return. If the prize is large enough, it can increase your total income and push you into a higher tax bracket, meaning you may owe more when you file.
But don’t worry – the U.S tax system is progressive, so not all of your income is taxed at the same rate. There are seven tax brackets, ranging from 10% to 37%, and different parts of your income are taxed at different rates.
For example, let’s say you’re single with no children and you earn $56,000 from your regular job in 2024. That puts you in the 22% tax bracket. But if you win $50,000 from the lottery, your total income for the year jumps to $106,000, pushing you into the 24% bracket.
However, you won’t pay 24% on all of your income. Instead, you’ll pay 10% on the first $11,600, 12% on income between $11,600 and $47,150, 22% on income between $47,150 and $100,525, and 24% on anything above that.
Federal income tax brackets for 2024
Remember, the deadline to file your 2024 federal income taxes is April 15, 2025.
| Rate | Single Person | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0- $11,60 | $0 – $23,200 | $0 – $11,600 | $0 – $16,550 |
| 12% | $11,600 – $47,150 | $23,200 – $94,300 | $11,600 – $47,150 | $16,550 – $63,100 |
| 22% | $47,150 – $100,525 | $94,300- $201,050 | $47,150 – $100,525 | $63,100 – $100,500 |
| 24% | $100,525 – $191,950 | $201,050- $383,900 | $100,525 – $191,950 | $100,500 – $191,950 |
| 32% | $191,950 – $243,725 | $383,900 – $487,450 | $191,950 – $243,725 | $191,950 – $243,700 |
| 35% | $243,725 – $609,350 | $487,450 – $731,200 | $231,251- $365,600 | $243,700 – $609,350 |
| 37% | $609,350 + | $731,200 + | $365,600 + | $609,350 + |
Source: IRS.gov
Do I have to pay state taxes on lottery winnings??
Of the 51 states in the United States, 36 have regulations that tax lottery winnings. States such as California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming do not withhold taxes on lottery winnings.
On the other hand, there are five states that do not participate in the National Lottery: Alabama, Alaska, Hawaii, Nevada and Utah. In these states, lottery prizes are not subject to state taxes.
Below is a detailed table listing all states and their respective tax rates on lottery prizes.
| State | Taxes on lottery winnings |
|---|---|
| New York | 10.9% |
| Maryland | 8.75% |
| Washington DC | 8.5% |
| New Jersey | 8% |
| Oregon | 8% |
| Wisconsin | 7.65% |
| Minnesota | 7.25% |
| Maine | 7.15% |
| Connecticut | 6.99% |
| Montana | 6.9% |
| Delaware | 6.6 |
| South Carolina | 6.5 |
| West Virginia | 6.5% |
| Idaho | 6% |
| New Mexico | 6% |
| Vermont | 6% |
| Rhode Island | 5.99% |
| Georgia | 5.49% |
| North Carolina | 5.25 |
| Iowa | 5% |
| Kansas | 5% |
| Kentucky | 5% |
| Massachusetts | 5% |
| Mississippi | 5% |
| Nebraska | 5% |
| Illinois | 4.95% |
| Arkansas | 4.9 |
| Arizona | 4.8 |
| Michigan | 4.25% |
| Louisiana | 4.25% |
| Colorado | 4% |
| Missouri | 4% |
| Ohio | 4% |
| Oklahoma | 4% |
| Virginia | 4% |
| Indiana | 3.23% |
| Pennsylvania | 3.07% |
| North Dakota | 2.9% |
State lottery tax funds generally go to a variety of public programs, depending on the state. Most commonly, states allocate a significant portion of these funds to education, including K-12 schools, colleges, and scholarships. Some states also direct lottery tax revenues to public services such as infrastructure projects, parks, senior programs, and environmental protection.
To learn more about this topic, see our post Where does U.S lottery money go?
Lump Sum or Annuity: Which is the best option for your lottery prize?
If you win a large lottery prize, you have two options for receiving your money: a lump sum or an annuity. The choice you make can have a significant impact on your long-term finances.
If you choose the lump sum, you’ll receive a one-time cash payment. However, you must be prepared to pay a higher tax rate. That’s because the total amount you receive in one lump sum could put you in one of the highest tax brackets for the year. And while it may be tempting to get all your money up front, you’ll end up with less in the long run because the full value of your prize is calculated based on those who choose the annuity option.
On the other hand, if you choose the annuity, you’ll receive annual payments for 29 years. This method has some significant advantages. The base amount of your prize is invested for you, and you earn interest over those 29 years. This means you’ll receive a larger total amount over time. Also, taxes are deferred until you receive each payment, which can help reduce your tax burden in certain years.
Another benefit of an annuity is that it can make it easier to manage your money and avoid the temptation to spend it all at once. By receiving regular payments, you can create a better long-term financial plan.
FAQs
How much tax does the IRS take out of lottery winnings?
If you win more than $5,000, the IRS automatically withholds 24% of your winnings. However, you may owe more depending on your total taxable income and tax bracket when you file your taxes.
Are lottery tickets tax deductible?
No, lottery tickets aren’t tax deductible. However, you can deduct gambling losses up to the amount of your winnings on Form 1040, Schedule A, if you itemize deductions.
The IRS requires that you keep accurate records, such as receipts and tickets, to prove your winnings and losses. A great way to track your lottery expenses and winnings is with the Lottonia App, which helps you easily manage your lottery records.
Which states tax lottery winnings?
Most states in the U.S. tax lottery winnings, but a few, like California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, don’t collect state taxes on these prizes.
Do I have to pay taxes if I win the lottery in another state?
Yes, if you buy a lottery ticket in another state and win, you’ll have to pay taxes in both the state where you bought the ticket and the state where you live. Be sure to check the tax rates and rules so you don’t get caught off guard.
Do foreigners pay tax on U.S lottery winnings?
Yes, foreigners pay taxes on U.S. lottery winnings. If you’re a non-resident and win the lottery, the IRS will automatically withhold 30% of your winnings for federal taxes. In addition, depending on the state where you purchased the ticket, you may also have to pay state taxes on your winnings. This could bring your total tax burden to around 40%.
Read more: What happens if a foreigner wins the U.S lottery?
Summing up…
It’s important to understand the taxes that apply to your lottery winnings. The amount you owe depends on your prize, where you live, and your annual income. Planning ahead and seeking professional advice can help you meet your tax obligations and avoid unpleasant surprises.
Start tracking your tickets and expenses with the Lottonia App to stay organized!
Important: Just as you should be aware of lottery scams, you should also be aware of tax scams. These are designed to steal your money or personal information. For example, you may receive a bogus notice claiming that you owe back taxes immediately or that you face arrest or deportation.
Another example is someone offering tax services without being qualified. Be wary of these people, as they may encourage you to falsify your tax return. Always research your preparers, check reviews, and make sure they’re properly qualified to help you.
Have you ever won the lottery? How did the taxes affect you? Share your story with us!