April is here, and with it comes an important reminder: it’s income tax deadline month! It’s time to get your finances in order and make sure you’re meeting your tax obligations. Speaking of taxes, did you know that lottery winnings also have to be included in your tax return? That’s right. While winning the lottery can be exciting, it also comes with tax responsibilities that we shouldn’t ignore. But, do you know how lottery winnings are taxed?
In this article, we’ll take a closer look at the world of taxes on lottery winnings. From federal taxes to state and local taxes that may apply. We’ll also discuss the factors that affect the amount of taxes you’ll ultimately pay. So if you’re feeling lost about your tax obligations on lottery winnings, stick with us. We will break it all down for you!
Important: We are not tax experts, so we recommend that you review the gambling income rules at IRS.gov . You may also want to consider consulting a CPA or tax professional for a clear and comprehensive understanding of this process.
Do you have to pay taxes on lottery winnings?
Absolutely. Contrary to popular belief, lottery winnings are taxed! Both the IRS and state tax authorities consider lottery winnings to be ordinary taxable income. Simply put, any money you win in the lottery is subject to taxation, just like any other income you earn, whether it’s from your job or other sources.
Now, the exact amount of tax you’ll owe can vary. It depends on factors such as the amount of your lottery winnings, the tax laws in your state, and your total annual income.
Factors That Determine Lottery Taxes
These are the main factors that affect the total amount of tax you’ll owe on your lottery winnings.
Amount of Winnings:
The amount of your prize directly affects the tax rate applied to your winnings. For example, lottery prizes up to $599.99 are usually tax-free. However, lottery agencies withhold taxes at a rate of 24% on all winnings over $5,000.
State of Ticket Purchase:
Each state has its own tax laws regarding lottery prizes. Tax rates can vary from tax-free states to others with rates as high as 9%. It’s important to know the tax laws of the state where you purchased the winning ticket, as they will affect your total tax liability.
Individual Tax Bracket:
Your individual tax bracket depends on your total taxable income, including lottery winnings. Most lottery winners fall into the 24% tax bracket, but individuals with higher incomes may fall into the 32% or 37% brackets.
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. A lump-sum payment gives you immediate access to the full amount of your winnings, but may subject you to higher upfront tax rates. On the other hand, receiving annual payments spreads out the money over a set period, which can lower your overall tax burden.
Federal Taxes on Lottery Winnings
In the United States, the federal tax system has seven income tax brackets. These brackets range from 10% to 37% depending on your annual income. What about lottery winnings? Well, they’re considered ordinary income and are taxable.
First, the IRS requires that 24% of lottery winnings equal to or greater than $5,000 be withheld. This withholding occurs before you receive a cent of your winnings. But beware! This 24% withholding may not be the actual amount of taxes you owe.
The exact amount of taxes you’ll owe depends on your total taxable income and your individual tax bracket. This means that your actual tax liability could be higher or lower than the initial 24% withholding. That’s why it’s important to calculate your taxes correctly to avoid unpleasant surprises when you file your tax return at the end of the fiscal year!
Breakdown of federal income tax brackets
Below, we provide a breakdown of the federal income tax brackets for the year 2023, which you’ll need to pay now in 2024. Additionally, we include the breakdown of the tax brackets for the fiscal year 2024, which you’ll need to declare in the year 2025.
This is the Federal income tax brackets for the year 2023 that are due on April 15, 2024.
| Rate | Single Person | Married Filing Jointly | Married Filing Separately | Head of Household |
| 10% | $0 – $11,000 | $0 – $22,000 | $0 – $11,000 | $0 – $15,700 |
| 12% | $11,001 – $44,725 | $22,001- $89,450 | $11,001 – $44,725 | $15,701 – $59,850 |
| 22% | $44,726 – $95,375 | $89,451 – $190,750 | $44,726 – $95,375 | $59,851 – $95,350 |
| 24% | $95,376 – $182,100 | $190,751 – $364,200 | $95,376 – $182,100 | $95,351 – $182,100 |
| 32% | $182,101 – $231,250 | $364,201 – $462,500 | $182,101 – $231,250 | $182,101 – $231,250 |
| 35% | $231,251 -$578,125 | $462,501 – $693,750 | $231,251 – $346,875 | $231,251 – $578,100 |
| 37% | $578,126+ | $693,751+ | $346,876+ | $578,101+ |
And this is the Federal income tax brackets for the year 2024 that are due on 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+ |
How Lottery Winnings Are Taxed at the Federal Level?
To better understand how your lottery winnings are taxed at the federal level, let’s go through an example.
Imagine that in 2023 you earned $56,000 from your regular job, which puts you in the 22% tax bracket. However, in addition to your regular income, you also won $50,000 playing Powerball that same year. Adding this $50,000 to your regular income gives you a total annual income of $106,000.
As you can see from the 2023 tax rate table, your lottery win moves you from the 22% marginal tax rate to the 24% bracket. This is because your total income now exceeds a certain threshold, increasing your marginal tax rate. It’s important to note that this calculation assumes you are a single filer and, for simplicity, does not take into account deductions.
State and Local Taxes on Lottery Winnings
When it comes to paying taxes on lottery winnings, it’s important to remember that some states will also withhold a portion of your winnings. The exact amount withheld depends on the state in which you live. For example, in the case of New York, the state can take a significant portion of your winnings, up to 13%! This is because the New York State income tax can be as high as 8.82%, while the New York City tax can be as high as 3.876%.
But what if you live in one state and buy your ticket in another? Typically, the state where you purchased the ticket (and where the prize was paid) will withhold taxes based on its own tax rate. Your lottery winnings are then taxed in your state of residence.
If your state of residence has an equal or lower tax rate, you may not owe any additional taxes. However, if your state of residence has a higher tax rate, you may receive a credit for the taxes you have already paid to the state where you purchased the ticket. In this case, you would only have to pay the difference.
How Lottery Winnings Are Taxed at the State and Local Level?
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 | 8.82% |
| Maryland | 8.75% |
| New Jersey | 8% |
| Oregon | 8% |
| Wisconsin | 7.65% |
| Minnesota | 7.25% |
| Arkansas | 7% |
| South Carolina | 7% |
| Connecticut | 6.99% |
| Idaho | 6.92% |
| Montana | 6.9% |
| West Virginia | 6.5% |
| New Mexico | 6% |
| Vermont | 6% |
| Rhode Island | 5.99% |
| Georgia | 5.75% |
| North Carolina | 5.5% |
| Arizona | 5% |
| Iowa | 5% |
| Kansas | 5% |
| Kentucky | 5% |
| Louisiana | 5% |
| Maine | 5% |
| Massachusetts | 5% |
| Nebraska | 5% |
| Illinois | 4.95% |
| Michigan | 4.25% |
| Colorado | 4% |
| Missouri | 4% |
| Ohio | 4% |
| Oklahoma | 4% |
| Virginia | 4% |
| Indiana | 3.23% |
| Pennsylvania | 3.07% |
| North Dakota | 2.9% |
US Lottery Tax for Foreigners
If you win a lottery prize and you don’t live in the United States, you still have to pay taxes on your winnings. If the prize is less than $599, you may not have to pay taxes. However, if it exceeds that amount, the relevant entity will apply a 30% withholding tax automatically before paying out the winnings.
In addition to federal withholding, you may be subject to state taxes. The state tax rate may vary depending on where you purchased the ticket, potentially bringing the total tax burden to approximately 40%.
But that’s not all. If you plan to take your winnings back to your home country, you may have to pay taxes there as well. This means that in addition to the taxes you’ll have to pay in the United States, you’ll also have to pay taxes in your home country. This could result in a significant tax burden.
Fortunately, some countries have double taxation treaties with the United States. These international treaties are designed to prevent a person or company from being taxed twice on the same income in both countries. Countries that have these treaties with the United States include the United Kingdom and Japan.
Summing up…
As a lottery winner, it’s important to understand the taxes that apply to your winnings. These taxes can vary depending on the amount of the prize, your state of residence, and your total annual income. Proper planning and professional advice can help you meet your tax obligations and avoid unpleasant surprises.
We want to know what do you think about lottery taxes? Do you have any experiences you would like to share? Leave your comments below!