Taxes on Lottery Winnings by State
When you see a lottery jackpot advertised at hundreds of millions or even billions, keep in mind that the actual payout will be lower. The advertised amount reflects the pre-tax prize, and lottery taxes vary by state. Some states impose high withholding taxes, while others don’t tax lottery winnings at all.
Lottery winnings are considered taxable income by both the federal government and most state governments. When you win a lottery, significant portions could be withheld upfront, depending on the amount won. For starters, each state is required to report all prizes of $600 or more to the Internal Revenue Service, as the federal government withholds about 30% for prizes over $5,000. Essentially, the more you win, the higher the percentage of your winnings that will be taken as tax, and the tax rate applied to your lottery winnings depends on the total amount won and your existing tax bracket. Understanding tax implications is crucial to managing your newfound wealth effectively.
Lottery Winnings Tax Rates
Lottery winnings are subject to federal taxes based on progressive tax brackets, meaning different portions of your prize are taxed at different rates. As a result, you won’t pay a flat rate on the entire amount. Depending on your total winnings, your federal tax rate could be as high as 37%. We recommend to use a tax calculator or consult with a financial advisor if you win large prizes.
State and local taxes vary widely. Some states, like Florida and Texas, don’t impose an income tax, while others withhold relatively high tax rates. Additionally, some states have special withholding rates for non-residents, meaning even if you don’t live there, you could still owe taxes on your prize.
The states with the highest tax rate for lottery winnings:
| New York | 10.9% |
| Maryland | 8.75% |
| Washington DC | 8.5% |
| Oregon and New Jersey | 8% |
| Wisconsin | 7.65% |
The following states offer the lowest tax rates:
| North Dakota | 2.9% |
| Mississippi | 3% |
| Pennysylvania | 3.07% |
| Indiana | 3.23% |
| Coloroado, Missouri, Ohio, Virginia | 4% |
Lump Sum vs. Annuity Payments
Winning select lotteries, such as Powerball and Mega Millions lottery often comes with a significant decision: choosing between a lump sum payment and annuity payments. Each option has its own set of tax implications and financial considerations.
The actual payout from Powerball and Mega Millions jackpots can vary significantly after taxes depending on where you live and whether you choose a lump sum or annuity payment. A lump sum payment is a one-time payment of the entire prize amount. While this option gives you immediate access to all your winnings, it also means you’ll face a higher immediate tax burden. The entire amount is subject to federal and state taxes in the year you receive it, which can push you into a higher tax bracket and result in a substantial tax bill.
On the other hand, annuity payments spread your winnings out over a period of years, typically 20 to 30 years. This option can lower your yearly taxable income, potentially keeping you in a lower tax bracket and reducing your annual tax liability. Annuity payments can also help with financial discipline, ensuring you have a steady stream of income over time.
Taxes on Powerball winnings are typically hefty, with both federal and state tax rates applying to your payout. Those who win large sums can calculate the exact amount they’ll take home using a Mega Millions tax calculator. When deciding between a lump sum and annuity payments, consider your financial goals, tax implications, and spending habits. Consulting with a financial advisor can also help you make an informed decision that aligns with your long-term financial plans.
How Lottery Winnings Are Taxed in TheLotter US States
Minnesota
The Minnesota State Lottery withholds taxes before prize money is paid out. Federal and state withholding taxes are deducted for every lottery prize over $5,000.
For Minnesota residents: Current federal tax law requires the Lottery to withhold 24 percent in federal income taxes, and current Minnesota state law requires the Lottery to withhold 7.25 percent in Minnesota state income taxes.
For non-resident aliens: Current tax laws require that the Lottery withhold 30 percent in federal income taxes on all Lottery prizes and 7.25 percent in Minnesota state income taxes on Lottery prizes over $5,000.
For more information, visit this page.
New Jersey
Federal Income Tax. Federal law requires the New Jersey Lottery to withhold 24 percent from any prize in excess of $5,000. A higher federal withholding rate of 30 percent applies to any prize of $600 or more paid to a winner who does not furnish a taxpayer identification (social security) number.
New Jersey Gross Income Tax. State law requires the New Jersey Lottery to withhold State tax at the rate of 5 percent from any prize in excess of $10,000 and up to $500,000 or 8 percent from any prize in excess of $500,000. The higher State withholding rate of 8 percent also applies to any prize in excess of $10,000 paid to a winner who does not furnish a taxpayer identification (social security) number.
New York
Federal Income Tax. For prizes over $5,000, and for New York residents with tax ID numbers or Social Security numbers, the New York Lottery is required to withhold 24% for federal taxes. The federal tax withholding rate is 30% for non-residents and winners who do not furnish a taxpayer identification (social security) number.
New York State Income Tax. State law requires the New York Lottery to withhold state income tax at the rate of 10.9% from any prize in excess of $5,000. In addition, the New York Lottery withholds 3.876% for residents of New York City, and 1.82575% for residents of Yonkers.
For more information, visit the official website.
Oregon
Oregon State Income Tax. For prizes over $1,500, the Oregon Lottery is required to withhold 8% for state taxes.
Federal Income Tax. For prizes over $5,000, and for Oregon residents with tax ID numbers or Social Security numbers, the Oregon Lottery is required to withhold 25% for federal taxes. The federal tax withholding rate is 30% for non-residents and winners who do not furnish a taxpayer identification (social security) number.
How to Pay Taxes on TheLotter US Winnings
Official lotteries may deduct taxes at source. In any case, winners will have to report their lottery winnings to the IRS according to regulations.
Winnings from TheLotter US are 100% commission-free, relevant taxes apply. Prizes of up to $600 will be deposited automatically into your online account. Lottery prizes of $600 and more will have to be collected by the winners personally at the local office where the order was made.
