How Much Are Lottery Winnings Taxed: Federal, State, Withholding

Lottery winnings are taxed as ordinary income: 24% is withheld by the payer the moment a prize exceeds $5,000, but the real federal rate on a large jackpot climbs to 37%, and state income tax can add up to roughly 10.9% on top. On a headline-grabbing prize, the combined federal, state, and local bite can exceed half the advertised amount.

How much are lottery winnings taxed in practice depends on the size of the prize, whether you take cash or an annuity, and where you live and bought the ticket.

The 24% Withheld at Payout

Any lottery agency paying out winnings must withhold 24% of the net proceeds (winnings minus the cost of the ticket) once those proceeds exceed $5,000.¹ For a state-conducted lottery, the $5,000 threshold alone triggers withholding; there is no separate “300 times the wager” test.² Prizes below $5,000 usually see no withholding, but the full amount is still taxable when you file.

Treat the 24% as a deposit, not a settlement. For most large winners, the real tax bill is significantly higher, and the difference is due when you file or through estimated payments during the year.

Your Real Federal Tax Rate

Lottery winnings stack on top of your wages and other income for the year, so a jackpot pushes almost all of the prize into the top federal bracket. For 2026, the 37% bracket starts at $640,600 for single filers and $768,700 for married couples filing jointly.³⁴

Because only 24% was withheld up front, a winner in the top bracket carries a 13-point gap on most of the prize. On a $10 million lump-sum payout, that gap alone comes to roughly $1.3 million in additional federal tax at filing time.

Lump Sum vs. Annuity

The cash option is typically around 40% to 50% of the headline jackpot number. A $500 million advertised prize might translate to a lump sum of roughly $200 million to $250 million before taxes. You report the entire amount as income in the year you collect it, which almost certainly puts the full sum in the 37% bracket.

Powerball’s annuity, by contrast, pays 30 graduated installments over 29 years. Each payment is taxed in the year you receive it.⁵ For a very large jackpot, each installment still lands in the top bracket, so the annuity offers little rate advantage. On moderately sized prizes, though, spreading income across years can keep some of it in lower brackets. Each annuity installment also has 24% withheld as it arrives, which lowers the risk of a surprise balance due.

State and Local Taxes

State income tax on lottery winnings runs from 0% to about 10.9%, and it stacks directly on the federal bill. Around eight states have no state income tax at all, so winnings escape state-level tax entirely there. A few states with an income tax specifically exempt their own state lottery winnings, but winnings from another state’s lottery remain taxable to residents.

On the other end, several states tax lottery winnings above 8%, with the top rate near 10.9%. Some cities pile a local income tax on top. A winner in a high-tax city could face combined state and local rates approaching 14%, which on top of 37% federal pushes total taxes past half the prize.

Buying a winning ticket in a state where you don’t live can trigger tax in both states. The purchase state may withhold at payout, and your home state expects the winnings on your resident return. Most states offer a credit for taxes paid to another state, which prevents full double taxation, though the offset is not always perfect. Check with your state’s tax agency for the rate that applies to you.

Paying What Withholding Doesn’t Cover

The 24% withheld is almost never enough on a large jackpot, and the IRS charges interest and penalties on underpayments. The current rate is 7% per year, compounded daily.⁶

To avoid an underpayment penalty, you generally need to pay in the lesser of 90% of the current year’s tax or 100% of last year’s tax through withholding and estimated payments. If your prior-year adjusted gross income topped $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises to 110%.⁷ For a first-time winner, the prior-year safe harbor is usually the easier target, because last year’s tax was far smaller than the bill on this year’s prize.

Estimated payments for 2026 are due April 15, 2026; June 15, 2026; September 15, 2026; and January 15, 2027. Use Form 1040-ES.⁸ If you win mid-year, you only need to make payments for the quarters remaining after the win.

Deducting Gambling Losses

Gambling losses can offset gambling winnings, but the rule tightened starting in 2026. The deduction is now capped at 90% of your losses for the year, and it still cannot exceed your total gambling gains.⁹ Even if losses exactly match winnings, 10% of those losses are nondeductible, leaving taxable income behind.

If you won $50,000 in lottery prizes and lost $50,000 gambling in the same year, the deduction tops out at $45,000. You owe tax on $5,000 despite breaking even.

Losses only count if you itemize on Schedule A. The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, so itemizing pays off only if gambling losses plus your other eligible deductions exceed that floor.³ The IRS expects a diary of gambling activity with receipts, tickets, and statements showing the date, location, and amount of each win and loss.⁵ Gambling losses offset gambling gains only; they cannot reduce wages or investment income.

Sharing the Prize With Family

Giving money away has its own tax rules. The federal annual gift tax exclusion for 2026 is $19,000 per recipient, and married couples can combine their exclusions to give $38,000 per recipient without filing a gift tax return.³

Gifts above the annual exclusion draw down your lifetime estate and gift tax exemption, which is $15,000,000 per person for 2026.³ Beyond that cap, the federal gift tax rate can reach 40%. Any single gift above $19,000 requires Form 709 to report the use of your lifetime credit, even if no tax is due.

Reporting and Nonresident Winners

The lottery files Form W-2G with the IRS and sends you a copy showing the prize and any tax withheld.¹⁰ For 2026, the general W-2G reporting threshold for gambling winnings is $2,000, up from the previous $600.¹ Prizes below the reporting threshold are still taxable and must be reported on your return.

Winnings go on Form 1040 under “Other Income.” Withholding shown on your W-2G is credited toward your total liability; you pay the balance or receive a refund.

If you are not a U.S. citizen or resident alien, federal withholding on a domestic lottery win is 30% of gross winnings rather than 24%.¹¹ A tax treaty between the United States and your home country may lower or eliminate that rate. Nonresident aliens file on Form 1040-NR. If the 30% withholding covers your full liability, filing may not be required, but you must file to claim a treaty benefit or a refund.

1
Internal Revenue Service. Instructions for Forms W-2G and 5754
2
Office of the Law Revision Counsel. 26 U.S. Code 3402 – Income Tax Collected at Source
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
5
Internal Revenue Service. Topic No. 419, Gambling Income and Losses
6
Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
7
Office of the Law Revision Counsel. 26 USC 6654 – Failure To Pay Estimated Income Tax
8
Internal Revenue Service. Form 1040-ES – Estimated Tax for Individuals
9
Office of the Law Revision Counsel. 26 USC 165 – Losses
10
Internal Revenue Service. About Form W-2G, Certain Gambling Winnings
11
Internal Revenue Service. Publication 519, U.S. Tax Guide for Aliens