Eight states impose no state income tax on lottery winnings: California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Seven of them have no state income tax at all, and California is the odd one out — it collects income tax but specifically exempts lottery prizes. Federal tax still applies in every state, with 24% withheld up front and a top rate of 37% when you file.
The Seven No-Income-Tax States
Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don’t collect state income tax on any earnings, and lottery prizes are earnings like any other. Buy a winning ticket in one of these states as a resident, and the only income tax you owe is federal.
Two of these are recent arrivals to the no-income-tax group. New Hampshire used to tax interest and dividend income but repealed that tax in 2025. Tennessee phased out its Hall Income Tax on investment income effective January 1, 2021. Neither state ever taxed wages or lottery prizes.
California’s Lottery Exemption
California is the only state that runs an income tax but carves lottery winnings out of it. The state’s Franchise Tax Board confirms that prizes from the California Lottery, including multi-state games like Powerball and Mega Millions, are not subject to California income tax.1Franchise Tax Board. Gambling California’s top marginal rate is above 13%, so the exemption is worth real money on a large prize.
The exemption is narrow. It covers California Lottery prizes only. Other gambling income earned in California — casino winnings, sports betting proceeds — is taxed at ordinary state rates.
States Without a Lottery
Five states don’t run a lottery at all: Alabama, Alaska, Hawaii, Nevada, and Utah. There’s no in-state ticket to buy, so the question of state tax on in-state winnings doesn’t come up. Residents can still win prizes on trips to other states, and what happens then depends on both the source state’s rules and their home state’s income tax. Alaska has no state income tax, so an Alaska resident who wins elsewhere owes nothing at home. Alabama and Hawaii residents would report out-of-state winnings on their home returns.
Where You Buy the Ticket Matters
Living in a tax-free state doesn’t protect you if you win somewhere else. Most states with an income tax treat lottery prizes won inside their borders as source income and claim the right to tax them no matter where the winner lives.
A Florida resident who buys a winning Mega Millions ticket in New York owes New York state tax on the prize even though Florida itself takes nothing. The New York lottery agency withholds state tax before paying out. New Jersey handles nonresident gambling winnings the same way, taxing them at the source.2State of New Jersey Department of the Treasury. Lottery and Gambling Winnings
If you live in one taxing state and win in another, both states have a claim. Your home state generally grants a credit for tax paid to the source state, so you don’t pay full rates twice. In practice you end up paying the higher of the two rates in total. Live in a 5% state, win in an 8% state, and your combined state bill is 8%, not 13%.
State withholding rates vary and are separate from federal withholding. Some states withhold a flat percentage that won’t match your final liability. You settle up when you file returns in both states.
Local Taxes Can Still Apply
State rules aren’t always the last word. A handful of cities levy their own income taxes, and lottery winnings aren’t exempt. New York City adds a 3.876% withholding on top of New York State’s rate for city residents.3New York Lottery. General Guidelines Combine that with federal and state, and a New York City winner can lose close to half the prize to taxes.
Some cities in Ohio, Maryland, and parts of the mid-Atlantic also tax gambling income. If your city runs a local income tax, check whether lottery prizes fall inside its tax base before you assume the state rate is the whole picture.
Federal Tax Applies Everywhere
No state exemption reaches the IRS. Lottery prizes are ordinary income at the federal level.4Internal Revenue Service. Topic No. 419, Gambling Income and Losses The federal hit comes in two stages.
The 24% Withholding
For any lottery prize over $5,000, the lottery agency withholds 24% before paying you. On a $1 million prize, $240,000 goes to the IRS before you touch the money. The agency files Form W-2G with the IRS and sends you a copy showing the prize and the tax withheld.5Internal Revenue Service. Instructions for Forms W-2G and 5754
That 24% is a down payment, not a final bill.
The 37% Top Rate
Lottery winnings run through the same progressive brackets as wages. For 2026, the top federal rate of 37% starts at $640,600 for single filers and $768,700 for married couples filing jointly.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Any multi-million-dollar jackpot clears those thresholds immediately, and the bulk of the prize is taxed at 37%. The gap between 24% withheld and 37% owed shows up as a large balance due the following April, easily six or seven figures on a big win.
So living in one of the eight tax-free states solves the state side of the equation. The federal side follows you anywhere.