On any lottery prize over $5,000, the IRS takes 24% right at the payout window, but that is only a down payment. Because lottery winnings are taxed as ordinary income, a large jackpot pushes most of the money into the top federal bracket of 37%, so how much the IRS takes from lottery winnings usually lands closer to 37% than 24% once you file your return. Set aside the difference or you’ll owe it in April, likely with a penalty attached.
The 24% Withheld at the Payout Window
Lottery organizations collect for the federal government before they hand you a check. When your prize exceeds $5,000, the payer withholds a flat 24% of the net winnings (the prize minus your wager) for federal income tax. The withholding applies to the full amount of the net winnings, not just the portion above the $5,000 threshold.1Internal Revenue Service. Instructions for Forms W-2G and 5754
Two situations change that rate. If you don’t provide a valid Social Security number or taxpayer identification number when you claim, backup withholding applies, also at 24%. Non-resident aliens face a flat 30% withholding on gambling winnings, reported on Form 1042-S rather than Form W-2G.1Internal Revenue Service. Instructions for Forms W-2G and 5754
Treat that 24% as a deposit. It is not the final bill.
What You Actually Owe: Up to 37% Federal
Lottery winnings stack on top of your wages and other earnings and are taxed as ordinary income. A multimillion-dollar prize sends nearly all of the winnings into the top federal bracket. For tax year 2026, the 37% rate kicks in on taxable income above $640,600 for single filers and above $768,700 for married couples filing jointly.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
The full 2026 brackets for single filers:
- 10% up to $12,400
- 12% from $12,401 to $50,400
- 22% from $50,401 to $105,700
- 24% from $105,701 to $201,775
- 32% from $201,776 to $256,225
- 35% from $256,226 to $640,600
- 37% above $640,600
The gap between the 24% already withheld and the 37% top rate is roughly 13 percentage points on the bulk of a large prize. On a $10 million cash prize, that gap alone works out to more than $1.3 million still owed when you file. Smaller prizes may not push you all the way to the top bracket, but any prize large enough to matter will almost certainly raise your effective rate above 24%.
What the IRS Doesn’t Take
Lottery winnings are not subject to Social Security tax (6.2%) or Medicare tax (1.45%). Those payroll taxes apply only to earned income. Because a prize is unearned, FICA does not apply. The Net Investment Income Tax also does not apply to gambling winnings. Your federal exposure on the prize itself is limited to ordinary income tax.
State tax is a separate story. Most states tax lottery winnings as ordinary income at rates that run from roughly 3% to nearly 11%, and some localities add their own surcharge. A few states with no income tax, or with specific lottery exemptions, take nothing. Combined federal and state tax on a big jackpot can approach or exceed 50% depending on where you live.
Covering the Gap: Estimated Tax Payments
The 24% already withheld usually falls well short of your final bill, and the IRS expects you to close the gap during the year rather than at filing. You generally need to make estimated tax payments if you expect to owe $1,000 or more after subtracting withholding and refundable credits.3Internal Revenue Service. Large Gains, Lump Sum Distributions, Etc.
To avoid an underpayment penalty, you generally need to have paid, through withholding and estimated payments combined, at least 90% of the current year’s tax or 100% of the prior year’s tax, whichever is smaller. If your prior-year adjusted gross income was above $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises to 110%.4Internal Revenue Service. 2026 Form 1040-ES Estimated Tax for Individuals
Because a lottery prize arrives all at once rather than evenly across the year, you can use the annualized income installment method to match your estimated payments to the quarter you actually received the money. That requires filing Form 2210 with Schedule AI attached. The 2026 quarterly deadlines are April 15, June 15, September 15, and January 15, 2027. If you win mid-year, you don’t have to make up payments for earlier quarters, but you do need to send appropriately sized payments for the remaining ones.3Internal Revenue Service. Large Gains, Lump Sum Distributions, Etc.
Lump Sum or Annuity Changes the Bill
Powerball and Mega Millions each offer two payout options: a single lump sum, or an annuity paid in 30 installments over 29 years with each payment slightly larger than the last. The lump sum is meaningfully smaller than the advertised jackpot because it reflects the present cash value of the prize pool, typically around 50% to 60% of the headline number.
The lump sum puts the entire prize into a single tax year, and nearly all of it lands in the top federal bracket. You settle the tax quickly and know exactly what you have left. The annuity spreads the income across almost three decades, so each annual payment is taxed at whatever rates apply in that year. Spreading the income can keep more of it in lower brackets, but your bill also depends on future tax law changes no one can predict. You only report the installment you actually received during a given tax year, not the full advertised jackpot.5Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income
Non-Cash Prizes: Tax With No Cash Attached
Winning a car, a vacation, or another physical prize creates a tax bill with no built-in money to pay it. The IRS treats the fair market value of a non-cash prize as taxable income, meaning what the item would sell for between a willing buyer and seller on the open market.6Internal Revenue Service. Topic No. 419, Gambling Income and Losses
When a non-cash prize is worth more than $5,000, the payer still has to arrange for withholding. Either you write the lottery a check for 24% of the prize’s value, or the payer covers the withholding for you at a grossed-up rate of 31.58% that accounts for the tax on the tax payment itself. You then owe income tax on the reported fair market value at your regular rate. A $50,000 car for someone in the top bracket can generate a federal tax hit of roughly $18,500, payable out of pocket or by selling the prize.1Internal Revenue Service. Instructions for Forms W-2G and 5754
Offsetting With Gambling Losses
You can reduce the tax on winnings with documented gambling losses, but only if you itemize deductions on Schedule A. The IRS requires records — receipts, tickets, statements, or a log — showing both your winnings and losses. Losses from all kinds of gambling count, including the cost of losing lottery tickets, and the deduction cannot exceed the gambling income you report.6Internal Revenue Service. Topic No. 419, Gambling Income and Losses
Starting in 2026, a new rule tightens the deduction. Section 4306 of the One, Big, Beautiful Bill Act caps the gambling loss deduction at 90% of your losses rather than 100%. If you won $201,000 and lost $200,000 in the same year, you can deduct $180,000 (90% of $200,000), leaving $21,000 in taxable gambling income instead of the $1,000 prior law would have produced. Careful recordkeeping matters more than ever.