• Tue. May 28th, 2024

Taxes on Lottery Winnings


Feb 25, 2024


Lottery is a form of gambling that involves selecting one or more winners at random. It’s sometimes used in decision making to allocate limited resources — like a job, a spot on a sports team or even a house — among equally competitive people.

In the United States, 44 states run lotteries. The six that don’t are Alabama, Alaska, Hawaii, Mississippi, Utah and Nevada — Nevada being home to the famous Las Vegas gambling mecca.

When someone wins the lottery, they typically receive either a lump sum or annuity payment. The amount of the lump sum and the structure of the annuity payments depend on state laws and regulations. Regardless, when it comes to taxation, lottery winnings aren’t treated the same as other income, and that can have serious consequences for your financial life.

If you win a large lottery prize, you may have to pay federal taxes of up to 24 percent, and that’s before state and local taxes take effect. If you’re in the highest tax bracket, that could eat up nearly half your winnings.

Lotteries were a major source of funding for public projects in colonial America, including roads, canals and churches. Some of the nation’s oldest and most prestigious universities, such as Princeton, Columbia and Dartmouth, were also founded with lottery money. But as Vox’s Alvin Chang explains, lottery revenue isn’t as transparent as traditional taxes and consumers are often unaware of the implicit tax rate they’re paying when they buy tickets.