Lottery Tax Calculator: How Taxes on Winnings Work
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Winning the lottery can be a life-changing affair. A sudden windfall could help you jumpstart a number of financial and personal goals, from paying off debt to upping your investing or retirement savings game.
If you're lucky enough to hit it big, celebrations are certainly in order. But don't forget to consider the fine print: The IRS, and most state governments, will want a piece of the action — how big that piece is depends on the size of your prize.
Here's what to know about how taxes work on lottery winnings and how to plan ahead. If you just want to run your numbers, jump to our lottery tax calculator.
How do lottery taxes work?
Money you win from the lottery is considered taxable income by federal and most state tax authorities. The lottery agency is required to take out a certain amount for taxes before the money is even given to you, but this often doesn't cover the entire tax bill. When you file your annual return, you'll need to report how much you won and square up with the IRS on any remaining taxes.
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Federal (and often state) taxes apply. Lottery winnings are taxable income at the federal level, just like money earned from employment. Some states exempt lottery winnings from state taxes, but most do not.
Some tax is skimmed off immediately. The IRS requires that lottery agencies immediately withhold a 24% tax on lottery winnings exceeding $5,000, which reduces your actual take-home prize amount. Automatic withholding is just one part of the equation, though: You’ll still need to report your winnings and potentially pay additional taxes when filing your annual income tax return.
Big wins can equal higher taxes. Winning a large amount of money can push parts of your income into higher tax brackets, exposing you to tax rates of up to 37%. In these situations, planning ahead for the bill is especially important.
» Dive deeper: Learn how the lottery works
How much is my take-home lottery prize after taxes?
Lottery agencies immediately withhold 24% on winnings over $5,000, which could help offset some of the tax burden you may face on your windfall when it comes time to file your return. For example, on a $10,000 prize, $2,400 of that sum will be immediately withheld for federal taxes, leaving you with a take-home amount of $7,600.
Some states also withhold state taxes on your winnings. For example, in New York, the state gaming commission is required to withhold 10.9% of New York State taxes in addition to the federal amount .
How much are taxes on lottery winnings?
If your prize is big enough, it can inflate your income, which can have a big effect on how much you may owe. However, the good news is that even if you win big, your entire income won't be taxed at the same rate. In the U.S., the federal tax system is tiered, which means different parts of your income are taxed at different rates.
For example, let's say you're a single filer whose combined lottery winnings and annual salary equal $80,000 in taxable income after deductions. You would pay 10% on the amount up to $11,600, 12% on the amount from $11,601 to $47,150, and 22% on the rest.
If you already have a high taxable income, a large lottery win can push part of it into the highest tax bracket of 37% — but remember, you won't be paying that rate on everything.
See how the tax brackets of the most common filing statuses (single filers and those who are married filing jointly) and rates work below, based on filing status. If you have a different tax filing status, check out our full list of tax brackets.
Lottery tax calculator
This lottery calculator can help you estimate the amount of tax that may be withheld on lump-sum lottery winnings. Enter the amount won to estimate potential federal taxes witheld on your winnings.
» Ready to see the whole picture? Check out NerdWallet's income tax calculator
Do I have to pay state tax on lottery winnings?
Most states charge a tax on lottery winnings. The amount initially withheld and how the winnings get taxed depends on your state’s tax rate(s) and system.
Only a few states — California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — do not impose a state tax on lottery winnings. Keep in mind that although living in these states may allow you to shelter your winnings from state tax, federal withholding and taxes will still apply.
If you live in a state that doesn’t have a lottery (Alabama, Alaska, Hawaii, Nevada and Utah) or purchased your winning ticket in a state you don’t live in, the state where you purchased your ticket may withhold state taxes on your winnings, and you’ll need to figure out how much you owe to your state at tax time.
» Learn more: State income tax rates and how they work
Should I take a lump sum payment or annuity payments?
You may have a choice as to how you receive the money: You may be able to take all the money right away or receive it in payments stretched out over many years (typically 29). Whatever you decide, you still have to pay taxes on your lottery winnings.
If you choose to receive the lump sum payment, you actually end up getting less money over the long haul. That’s because the total amount of the lottery prize is calculated based on the winner choosing the annuity payment plan. The base amount is invested for you, and you earn interest on it for 29 years after you win the prize.
There also may be some tax advantages to taking the annuity payments since your taxes are deferred until you actually get the payments — plus, it’s harder to spend all the money at once if you’re getting payments for nearly 30 years.
The obvious advantage of taking a lump sum is that you’re handed a giant pile of cash all at once. Another consideration is that since the money is in your hands right away, you get more control over what to do with it — including how and where to invest your winnings if you choose to do so.
How do I deal with lottery taxes?
If you’ve come into a lot of money from winning the lottery, it may be worth investing in a financial planner and a tax advisor These professionals may be able to help you make the most of your winnings and help you set yourself up for long-term financial success.
Some online financial advisors also have in-house tax experts who can work in tandem.
» Learn how to find the best tax pro near you
A previous version of this article misstated that the lottery tax calculator would help calculate taxes owed, rather than withheld, on winnings. This article has been corrected.
