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Your Guide to US Lottery Taxes
You’ve played and you’ve won! Welcome to the 1%! Or, maybe you haven’t won yet, but you want to know what would happen in the fortunate “if” case. Many lottery players have questions referring to US lottery taxes. “Are there any tax-free American lottery games?”, “What are the taxes on US Powerball prizes?” or “Do I have to pay a lottery tax in Australia when I win a US lotto jackpot playing online?”. If you are dealing with this kind of questions yourself, you are in the right place!
PLEASE NOTE: this article and any tax-related information on theLotter is provided for information purposes only. The information is not intended to be and does not constitute financial advice or any other advice, is general in nature and not specific to you. When you win a large lottery prize, we encourage you to seek the advice of a qualified and registered tax accountant or a lawyer specialized in taxation.
What Happens When You Win an American Lottery?
In the United States, lottery winnings are normally taxed as income. Your US lottery wins are taxed by the IRS in the state in which the ticket was bought and then by the federal government. The US government withholds 30% of the winnings for those who are not US residents. American lottery winners have to pay an upfront federal tax of 25%, and the rest has to be paid at tax time.
Which lottery tax percentage you will end up paying when you win a US lottery prize depends on a few factors such as the amount of the prize, and the state where the ticket was purchased. Sometimes there are also city taxes, such as for the US lottery tickets purchased in New York City or Yonkers. These cities have special withholding taxes.
Additionally, some states (such as Arizona and Maryland) have a different tax rate for non-residents of the state, meaning that you will pay a different tax rate if you purchase your US lottery ticket online and do not live in the state where the ticket was purchased.
Lump Sum vs Annuity - The Differences in Tax Payments
Lottery winners are offered two options: the cash payout (also known as lump sum) or an annuity jackpot. If a winner chooses the cash payout, the state lottery gives him or her the jackpot’s “cash value”, and the federal income taxes are taken out immediately. That means the recipient would pay the income tax on that amount up front.
If a winner picks the annuity jackpot, the state lottery invests the cash in various government securities. The winner is then given 30 payouts over 29 years, plus any interest earned. As per American tax laws, the first installment is charged at the tax rate of the time of the win. Then, the amounts of all future payouts depend on the tax bills from the time when the money is cashed in.
In Which US States Does theLotter Buy Tickets for American Lotteries?
Tickets for games organized by the state lotteries are, obviously, purchased in the state where the games are held. For instance, the tickets for Cash4Life are purchased in New York.
US Powerball and Mega Millions are multi-state games and therefore Americans can buy their tickets in 44 different states. theLotter purchases US Powerball and Mega Millions in Oregon. Currently you cannot choose from which state your US Powerball tickets are purchased. However, you can see the location of purchase on the scanned ticket that’s uploaded to your account before the draw takes place, as part of our See Your Ticket service.
Taxes on Lottery Winnings By US State
As we have mentioned above, American lottery taxes vary from one state to another. We have set up a simulation on the taxation process in each American state adapted for a lottery prize. This will relay the massive differences in state tax laws in the US. The example we've chosen for our simulation is the minimum jackpot amount in the US Powerball, which has an estimated value of $40 million. The cash value for this prize is $23.4 million.
After deduction of federal taxes, you are left with an amount of $17 million. If your ticket was purchased in Oregon, you will scoop $15.4 million as a lump sum, after deduction of the 8% state tax. If your ticket were purchased in New Jersey, for example, you would get $15.9 million as a lump sum, after deduction of the 6% state tax. If your ticket were purchased in New York, you would be entitled to $15.1 million as a lump sum, after deduction of the 8.82% state tax. Please see below a list of the American State tax quotas applied for the minimum jackpot in the US Powerball.
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Arizona
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5% for residents
6% for non-residents
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$17,313,750
$15,989,400
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Arkansas
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7%
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$16,998,093
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California
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No tax
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$17,010,000
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Colorado
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4%
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$17,003,196
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Connecticut
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6.99%
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$16,998,110
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Delaware
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No tax
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$17,010,000
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Florida
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No tax
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$17,010,000
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Georgia
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6%
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$16,999,794
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Idaho
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7.4%
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$16,997,413
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Illinois
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3.75%
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$17,003,621
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Indiana
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3.4%
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$17,004,217
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Iowa
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5%
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$17,001,495
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Kansas
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5%
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$17,001,495
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Kentucky
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6%
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$16,999,794
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Louisiana
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5%
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$17,001,495
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Maine
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5%
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$17,001,495
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Maryland
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8.75% for residents
7.5 for non-residents
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$16,630,313
$15,734,250
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Massachusetts
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5%
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$17,001,495
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Michigan
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4.25%
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$17,002,771
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Minnesota
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4%
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$17,003,196
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Missouri
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4%
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$17,003,196
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Montana
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6.9%
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$16,998,263
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Nebraska
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5%
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$17,001,495
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New Hampshire
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No tax
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$17,010,000
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New Jersey
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6%
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$16,999,794
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New Mexico
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6%
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$16,999,794
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New York
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8.82%
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$16,994,997
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North Carolina
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5.75%
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$17,000,219
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North Dakota
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2.9%
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$17,005,067
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Ohio
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4%
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$17,003,196
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Oklahoma
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4%
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$17,003,196
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Oregon
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8%
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$16,996,392
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Pennsylvania
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3.07%
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$17,004,778
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Puerto Rico
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No tax
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$17,010,000
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Rhode Island
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5.99%
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$16,999,811
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South Carolina
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7%
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$16,998,093
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South Dakota
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No tax
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$17,010,000
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Tennessee
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No tax
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$17,010,000
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Texas
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No tax
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$17,010,000
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Vermont
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6%
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$16,999,794
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Virginia
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4%
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$17,003,196
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Washington
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No tax
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$17,010,000
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Washington, D.C.
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8.5%
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$16,995,542
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West Virginia
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6.5%
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$16,998,944
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Wisconsin
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7.75%
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$16,996,817
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Wyoming
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No tax
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$17,010,000
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What Taxes Do Australians Have to Pay for American Lottery Prizes?
If Australians win prizes in American lotteries, then they have to pay taxes as per US lottery tax laws. As described above, they have to pay a federal tax and a state tax on their winnings. Additionally, they have to abide by Australian tax laws.
Fortunately, lottery winnings are non-taxable in Australia, which means that once they pay their dues to the US authorities, the entire remaining amount of the lottery prize is theirs to keep. If you want to read more about the taxation process for lotto winnings in Australia, you can read our guide to Australian lottery taxes.
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