Lottery Prize Taxes

A federal withholding of 25 percent is made immediately from lottery wins worth $5,000.01 or more. Those who do not provide a Social Security Number have 28 percent taken and non-U.S. residents lose 30 percent.

Lottery prizes are counted as income and you must declare the winnings at tax time. You will either be billed for more or receive a refund from that initial withholding, depending on your annual income.

The top rate of federal tax is currently 39.6 percent, and this is charged on income of more than around $450,000.

Many players must also pay state taxes, depending on where they live. Large prizes such as the jackpot are all subject to federal tax obligations, but the overall levy depends on where you bought your ticket. Wyoming, Washington, Texas, South Dakota, and Florida don't levy income taxes on their residents, while Tennessee and New Hampshire only impose taxes on income from dividends and interest.

Here are the tax rates in the participating Powerball and Mega Millions states and jurisdictions (note that Mega Millions is not available in Puerto Rico):

Lottery Taxes by State
State Withholding Jurisdiction
No state tax on lottery prizes California, Florida, New Hampshire, Puerto Rico, South Dakota, Tennessee, Texas, U.S. Virgin Islands, Washington State, Wyoming
2.9% North Dakota
3% New Jersey
3.07% Pennsylvania
3.4% Indiana
3.75% Illinois
4% Colorado, Missouri, Ohio, Oklahoma, Virginia
4.25% Michigan
5% Arizona, Iowa, Kansas, Louisiana, Maine, Massachusetts, Mississippi, Nebraska
5.75% North Carolina
5.99% Rhode Island
6% Georgia, Kentucky, New Mexico, Vermont
6.5% West Virginia
6.6% Delaware
6.9% Montana
6.99% Connecticut
7% Arkansas, South Carolina
7.25% Minnesota
7.4% Idaho
7.75% Wisconsin
8% Oregon
8.5% Washington D.C.
8.75% Maryland
8.82% New York

Lottery winners can choose to have their prize paid out as an annuity (paid annually over 29 years) or as a smaller cash lump sum right away - see here for more details.

You are only taxed on income received in a set tax year, so those who choose the cash lump sum jackpot option pay a one-time levy on their win. However, they will be liable for taxes on income earned from the sum in future years.

Winners who choose the annuity option pay taxes on each annual payment at a rate dependent on its value.

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