Lottery winnings are taxed as ordinary federal income, with 24% withheld immediately on any prize over $5,000 and a final federal rate that can climb to 37% for 2026. State income tax adds anywhere from 0% to roughly 10.9% on top. So the honest answer to how much tax on lottery winnings you’ll pay is: expect to lose somewhere between a third and half of a large jackpot to combined federal and state taxes, and don’t mistake the amount withheld at payout for the amount you actually owe.
The 24% Taken Off the Top
Before you touch a dollar of a large prize, the lottery commission withholds 24% for federal income tax. This applies to any lottery payout over $5,000 under 26 U.S.C. § 3402(q).1Office of the Law Revision Counsel. 26 USC 3402 – Income Tax Collected at Source On a $1,000,000 win, $240,000 goes straight to the IRS. Treat that number as a down payment on your tax bill, not the final figure.2Internal Revenue Service. Instructions for Forms W-2G and 5754
What You Actually Owe the IRS
Federal income tax is progressive. Lottery winnings stack on top of your wages, investments, and any other income, and different slices are taxed at rising rates. For tax year 2026, the top marginal rate is 37%, and it kicks in on taxable income above $640,600 for single filers or $768,700 for married couples filing jointly.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Most multi-million-dollar prizes blow past that threshold in a single payment, which means the overwhelming majority of the winnings gets taxed at 37%.
The gap between the 24% withheld at payout and the 37% top rate is 13 percentage points. On a $10,000,000 lump-sum prize, that gap translates to roughly $1.3 million in additional federal tax owed when you file your return. A small portion of the winnings falls into lower brackets on its way up to 37%, but on a large jackpot that portion is negligible compared to what lands at the top rate.
State Income Tax
State income taxes on lottery prizes range from 0% to roughly 10.9%. Several states impose no state income tax at all, so lottery prizes escape state taxation entirely there: Florida, Texas, Wyoming, Washington, Tennessee, South Dakota, and New Hampshire. California specifically exempts lottery winnings from state income tax even though it taxes other income.
At the high end, some states apply their top income tax rates to lottery prizes, and in a few cities a municipal tax stacks on top, pushing the combined state and local bite close to 13%. On a large prize, that difference between states is measured in millions of dollars.
Buying a ticket outside your home state adds a wrinkle. The state where the ticket was purchased typically withholds its tax at payout. Your home state then taxes the winnings as part of your total income but generally credits you for tax already paid to the other state. If your home state’s rate is higher, you owe the difference at home.
Five states — Alabama, Alaska, Hawaii, Nevada, and Utah — do not participate in Powerball or Mega Millions, so residents buying tickets locally don’t face the state-tax question at all.
Lump Sum or Annuity: How the Choice Changes Your Tax Bill
Most large lotteries let you pick between a single lump-sum payment and an annuity paid out over about 30 years. The tax picture looks very different depending on which you choose.
A lump sum drops the entire cash value into a single tax year. For any jackpot above a few million dollars, nearly all of that amount lands at the 37% top federal rate. You get the money now, but you also face the largest possible tax bill at once.
An annuity spreads the prize into annual installments, and each payment is taxed as income only in the year you receive it.4Internal Revenue Service. Topic No. 419, Gambling Income and Losses Smaller annual payments can leave portions of your income in the 22%, 24%, or 32% brackets before reaching 37%. On a $300 million jackpot paid over 30 years, each roughly $10 million installment still mostly lands at the top rate, but on smaller jackpots the annuity can meaningfully lower the effective tax rate. The trade-off is that you can’t invest the full amount now, and inflation eats at future payments.
If You’re Not a U.S. Resident
Winners who are not U.S. citizens or resident aliens face a flat 30% federal withholding rather than 24%.5Internal Revenue Service. Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities Tax treaties can lower or eliminate this. Residents of more than two dozen countries, including the United Kingdom, France, Germany, Japan, and Ireland, may be fully exempt from U.S. tax on gambling winnings under their country’s treaty. Malta residents get a reduced 10% rate. Claiming treaty benefits requires a completed Form W-8BEN with a valid taxpayer identification number. State withholding still applies at the state where the ticket was bought, regardless of where the winner lives.
Estimated Payments So You Don’t Get Penalized
Because the 24% withheld at payout usually falls well short of what you actually owe, most big winners need to make estimated tax payments during the year they claim the prize. You do that with Form 1040-ES. Skip this step and the IRS charges an underpayment penalty.6Internal Revenue Service. 2026 Form 1040-ES
The four estimated tax deadlines for 2026 are:
- 1st payment: April 15, 2026
- 2nd payment: June 15, 2026
- 3rd payment: September 15, 2026
- 4th payment: January 15, 2027
You can skip the January 15 payment if you file your 2026 return and pay the balance in full by February 1, 2027.6Internal Revenue Service. 2026 Form 1040-ES Payments go through IRS Direct Pay, EFTPS, or a mailed check with the voucher from Form 1040-ES.7Internal Revenue Service. About Form 1040-ES, Estimated Tax for Individuals
To avoid the underpayment penalty, you generally need to pay either 90% of the tax owed for the current year or 100% of the tax shown on your prior-year return, whichever is less. If your prior-year adjusted gross income was above $150,000, that 100% figure rises to 110%.8Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty For a first-time winner, the prior-year safe harbor is often the simpler path. Given the sums involved, hire a tax professional.
Sharing the Prize Can Trigger Gift Tax
Splitting winnings with family or friends is a gift under federal tax rules, not income to the recipient. If you win $10 million and hand $2 million to a sibling, the IRS treats that as a taxable gift from you.
For 2026 you can give up to $19,000 per person per year without any gift tax consequences or reporting.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Anything above that must be reported on Form 709, due April 15 of the year after the gift.9Internal Revenue Service. Instructions for Form 709 Filing Form 709 doesn’t automatically mean you owe gift tax; the excess just reduces your lifetime gift and estate tax exemption, which is $15,000,000 for 2026.
Group play is the exception. If you bought the ticket as part of a pool with a written agreement in place before the drawing, the prize can be split among co-owners without triggering gift tax. You need documentation: a signed pooling agreement, records of each person’s contribution, and a consistent pattern of group play. Without that paper trail, the IRS may treat the entire prize as one person’s income, with taxable gifts flowing from there.