US Lottery Tax by State: Federal + State Withholding Explained
Lottery winnings face federal and state taxes. We break down withholding rates by state, the 24% federal hit, top marginal rate, and the states with zero lottery tax.
Federal tax on lottery winnings
The IRS treats lottery winnings as ordinary income. For prizes over $5,000, the lottery withholds 24% federal income tax automatically. At year-end filing, the full prize is added to your taxable income, and you may owe up to 37% (the top federal marginal rate) after the 24% withholding. For large jackpots, the effective federal rate is essentially the full 37%.
States with zero lottery income tax
Eight states impose no state income tax on lottery winnings: Florida, Texas, Tennessee, Washington, South Dakota, New Hampshire, Wyoming, and California (California specifically exempts lottery winnings from its income tax, despite having a state income tax on other income). If you bought your ticket in any of these states, no state withholding applies.
States with the highest lottery tax rates
Top lottery tax states (state withholding on lottery prizes): New York 8.82% + NYC 3.876% additional for city residents (total over 12% in NYC), Maryland 8.95% (8.75% state + 0.2% local), New Jersey 8% on winnings over $500K, Oregon 8% on winnings over $125K, Wisconsin 7.65%, Minnesota 7.25%, Arkansas 7%, South Carolina 7%.
The "non-resident state" complication
You can be subject to state tax both in the state where you bought the ticket and in your state of residence (with a credit for taxes paid to the other state). This particularly matters for jackpot winners who travel to play. The cleanest setup tax-wise: buy your ticket in your home state if your home state has lottery tax, or in a no-tax state if your home state doesn't.
Estimating your take-home
A rough rule of thumb for a Powerball jackpot lump sum in a high-tax state: advertised jackpot × 0.50 (cash option) × 0.55 (after federal + state tax) ≈ 27-28% of the advertised number lands in your account. For a $700M advertised jackpot, that's roughly $190M-200M net. In a no-tax state like Florida, that figure rises to roughly $220M-230M net.
Annuity vs lump-sum tax timing
With the lump sum, all tax is owed in one year (essentially guaranteeing the top marginal rate). With the annuity, each annual payment lands in its own tax year — but each payment is still large enough to land in the top bracket for almost all winners. The total tax bill ends up roughly identical; only the timing differs. The annuity does, however, protect against future federal rate hikes — if rates rise after your win, future annuity payments are taxed at the new rates.
Frequently Asked Questions
Do I owe taxes if I win less than $5,000?
No federal tax is withheld on prizes under $5,000, but the IRS still treats the winnings as taxable income. You are required to report them on your tax return regardless of withholding.
Can I avoid taxes by gifting my winnings?
No. You owe income tax on the full winnings before any gifting. Gifts above the annual exclusion ($18,000 per recipient in 2026) reduce your lifetime gift/estate tax exemption ($13.61M in 2026), so large gifts have additional implications.
What if I win in one state but live in another?
You typically owe tax in both the state where you bought the ticket (if it taxes lottery winnings) and your state of residence (with a credit for tax paid to the other state). A tax attorney is strongly recommended for any large win.
Are there any legal ways to reduce my lottery tax bill?
Limited options exist: choose the annuity to spread taxable income across years (each year still in top bracket for most winners), donate to qualified charities to reduce taxable income, establish residency in a no-income-tax state before claiming. Consult a tax attorney before claiming any large prize.