What Is the Tax Rate for Lottery Winnings?

By: John Perritano  | 

powerball jackpot
Richard Litton of Playa Del Rey, California, holds $3,000 to purchase 1,500 Powerball tickets in 2019. The Powerball jackpot in 2021 has reached over $550 million. Al Seib/Los Angeles Times via Getty Images

Ah yes, winning the lottery. It's a dream for all of us. Mega Millions, Powerball, Lotto. So many games. So many losers. But, if on the off chance you do win millions in a lottery jackpot, keep in mind that the Internal Revenue Service will be looking for its fair share.

While you don't have to report lottery winnings of $600 or less, if you win more than $5,000, the government will hit you with a 24 percent federal withholding tax. (Depending on your annual earnings and your deductions, you may get some of this back after filing your income taxes.) Win $500,000 or more for a single person or $600,000 for a couple and the tax rate jumps to, gulp, 37 percent. Still, this is lower than the previous rate of 39.8 percent, thanks to the tax law changes of 2017. (Note that the IRS will take 24 percent off the top and the rest will become due at tax time, though with deductions and other things you may not have to pay the whole difference.)

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And that's not all. Your state department of revenue services will also be looking for their take. Woe to anyone who wins the big-buck lottery in New York. You'll get slapped with an 8.82 percent tax rate. If you live in New York City, add another 3.876 percent on all income over $500,000.

However, states with no state income tax, like Florida and Texas, will not tax your lottery winnings. And two other states (California and Delaware) don't tax state lottery winnings. Most states won't charge non-residents state taxes on their lottery winnings, with the exception of Arizona and Maryland, according to TaxAct. If you live in Arizona, you'll be slammed with a 4.8 percent tax on the prize, while nonresidents will have to dole out 6 percent.

So before you spend all your winnings, remember that some of that cash belongs to Uncle Sam and choose wisely where you play.

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Originally Published: Nov 26, 2014

Tax Rate Lottery FAQ

How much tax do you pay on lottery winnings?
In the U.S., if you win a lottery of $600 or less, you don't have to report it. If you win more than $5,000, you have to pay a 24 percent federal withholding tax. However, depending on your annual earnings and tax deductions, you may get some of this amount back after filing your income taxes.
Who is exempt from paying tax on lottery winnings?
States with no state income tax, like Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not tax lottery winnings. Other states like California and Delaware don't tax state lottery winnings. Most states don't tax non-residents on their lottery winnings, except Arizona and Maryland.
Which state has the lowest taxes on lottery winnings?
Tennessee and New Hampshire tax only interest and dividend income, so Tennessee has the lowest taxes on lottery winnings, which is about 1 percent.
Are lottery winnings taxed twice?
Lottery winnings are not taxed twice. Under both the federal and state tax system, they are considered ordinary taxable income. You pay tax on your winnings whenever you receive them, either the lump sum or if it’s over a period of time, with each payment you receive.

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Related Articles

  • Ellis, Blake. "You won the lottery! What's your tax hit?" CNN. Nov. 30, 2012. (Oct. 15, 2014) http://money.cnn.com/2012/11/30/pf/taxes/powerball-lottery-tax/
  • Duncan, Kevin et al. "Lottery Tax Rates Vary Greatly by State." Tax Foundation. Mar. 29, 2014. (Oct. 15, 2014) http://taxfoundation.org/article/lottery-tax-rates-vary-greatly-state
  • Novack, Janet. "Minus Taxes And Hype, $636 Million Jackpot Shrinks To $206 Million -- Or Less." Forbes. Dec. 17, 2013. (Oct. 15, 2014) http://www.forbes.com/sites/janetnovack/2013/12/17/minus-taxes-and-hype-636-mega-millions-jackpot-shrinks-to-206-million-or-less/
  • Prante, Gerald and John, Austin. "Top Marginal Effective Tax Rates by State and Source of Income, 2012 Tax Law vs. 2013 Tax Law." Social Science Research Network. Feb. 3, 2013. (Oct. 15, 2014) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2176526

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