Winning the lottery is exciting, but taxes can take a significant bite out of your prize. Federal taxes claim 24-37%, and state taxes add 0-10%+ depending on where you live. This guide shows you exactly what to expect and how to minimize your tax burden.
Lottery Tax Quick Facts
- Federal withholding: 24% on prizes over $5,000
- Actual federal rate: Up to 37% for large jackpots
- State taxes: 0% to 10.9% depending on state
- Best states for winners: CA, FL, TX, WA, WY (0%)
- Worst states for winners: NY, NJ, MD, OR (8%+)
Important Tax Note
The 24% withheld at claiming is just a down payment. For large jackpots, you'll owe an additional 13% at tax time to reach the 37% top federal bracket. Always set aside extra funds for this tax bill.
Federal Lottery Taxes
All lottery winnings are considered taxable income by the IRS. Here's how federal taxes work:
Federal Tax Withholding
- Prizes under $600: No withholding (you still owe taxes)
- $600 - $5,000: Reported to IRS, no withholding
- Over $5,000: 24% withheld automatically
- Non-residents: 30% withheld
2024-2025 Federal Tax Brackets
| Tax Rate | Single Filers | Married Filing Jointly |
|---|---|---|
| 10% | Up to $11,600 | Up to $23,200 |
| 12% | $11,601 - $47,150 | $23,201 - $94,300 |
| 22% | $47,151 - $100,525 | $94,301 - $201,050 |
| 24% | $100,526 - $191,950 | $201,051 - $383,900 |
| 32% | $191,951 - $243,725 | $383,901 - $487,450 |
| 35% | $243,726 - $609,350 | $487,451 - $731,200 |
| 37% | Over $609,350 | Over $731,200 |
Any jackpot over $1 million will push you into the 37% bracket. For a $500 million lump sum (~$250 million), you'll owe about $92.5 million in federal taxes alone.
State Lottery Tax Rates (2025)
State taxes are in addition to federal taxes. Here are the rates for all states with lotteries:
States With No Lottery Tax
All State Tax Rates
| State | Tax Rate | Notes |
|---|---|---|
| California | 0% | No state tax on lottery |
| Delaware | 0% | No state tax on lottery |
| Florida | 0% | No state income tax |
| New Hampshire | 0% | No state income tax |
| South Dakota | 0% | No state income tax |
| Tennessee | 0% | No state income tax |
| Texas | 0% | No state income tax |
| Washington | 0% | No state income tax |
| Wyoming | 0% | No state income tax |
| Pennsylvania | 3.07% | Flat rate |
| Indiana | 3.05% | Flat rate |
| North Dakota | 2.5% | Top marginal rate |
| Michigan | 4.25% | Flat rate |
| Arizona | 4.5% | Top marginal rate |
| Colorado | 4.4% | Flat rate |
| Illinois | 4.95% | Flat rate |
| Ohio | 3.99% | Flat rate |
| Georgia | 5.49% | Flat rate (2024) |
| Virginia | 5.75% | Top marginal rate |
| Missouri | 4.95% | Top marginal rate |
| Kansas | 5.7% | Top marginal rate |
| Massachusetts | 5% | Flat rate |
| New Jersey | 10.75% | Top marginal rate, highest tier |
| Maryland | 8.75% | Top marginal rate |
| New York | 10.9% | Top marginal rate |
| New York City | +3.876% | Additional NYC tax |
| Yonkers | +1.477% | Additional Yonkers tax |
| Oregon | 9.9% | Top marginal rate |
| Minnesota | 9.85% | Top marginal rate |
| Wisconsin | 7.65% | Top marginal rate |
| Connecticut | 6.99% | Top marginal rate |
Real Example: $500 Million Jackpot
Let's calculate the after-tax amount for a $500 million jackpot in different states:
| State | Lump Sum | Federal Tax | State Tax | Take Home |
|---|---|---|---|---|
| Florida (0%) | $250M | -$92.5M | $0 | $157.5M |
| Georgia (5.49%) | $250M | -$92.5M | -$13.7M | $143.8M |
| New Jersey (10.75%) | $250M | -$92.5M | -$26.9M | $130.6M |
| NYC (10.9% + 3.876%) | $250M | -$92.5M | -$36.9M | $120.6M |
The difference between winning in Florida vs. New York City is $36.9 million—just from state and city taxes! This is why some winners relocate before claiming.
Strategies to Minimize Lottery Taxes
1. Choose the Annuity Option
Spreading income over 29 years means lower payments each year. While you'll still hit the top bracket, you'll have more flexibility for deductions and charitable giving each year.
2. Charitable Giving
Donating to qualified charities reduces taxable income. You can deduct up to 60% of your AGI for cash donations to public charities. Consider a donor-advised fund for strategic giving over time.
3. Consider Relocation
Moving to a no-tax state before claiming could save millions. However, states may challenge residency if you haven't truly relocated. Consult a tax attorney before attempting this strategy.
4. Trust and Estate Planning
Proper estate planning can minimize taxes when passing wealth to heirs. Techniques like grantor retained annuity trusts (GRATs) can transfer appreciation tax-free.
5. Maximize Deductions
Large winnings mean large potential deductions matter more. Mortgage interest, property taxes, investment expenses, and other deductions can offset some income.
Frequently Asked Questions
Which states have no lottery tax?
Nine states have no lottery tax: California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. California and Delaware specifically exempt lottery winnings; the others have no state income tax at all.
Do I pay taxes on lottery winnings in the state where I bought the ticket?
You pay taxes in your state of residence, not where you purchased the ticket. If you're a resident of Florida and win in New York, you pay no state tax. However, some states may withhold taxes at the time of claiming, which you can claim back when filing.
Can I move to a no-tax state before claiming to avoid taxes?
Theoretically yes, but it's complicated. You must establish genuine residency, not just claim it. States look at factors like where you vote, keep your driver's license, own property, and spend most of your time. Consult a tax attorney before attempting this strategy.
How much will I actually owe in taxes?
For jackpot winners, expect to pay 37% federal plus your state's rate (0-10.9%). The total ranges from 37% to about 51% in New York City. On a $250 million lump sum, that's $92.5 million to $127.5 million in taxes.
When do I have to pay the taxes?
24% is withheld immediately when you claim. The remaining amount (up to an additional 13% federal plus state taxes) is due with your annual tax return. For large prizes, you may need to make quarterly estimated payments to avoid penalties.
Are lottery taxes going up or down?
Federal tax rates are set by law and change periodically. The current 37% top rate was established in 2017 and is scheduled through 2025, after which rates may change. State rates vary based on each state's legislature.