Are lottery prizes taxable?
Lottery winnings of $600.01 and over are subject to Federal Withholding tax. For winnings of $600.01, up to and including $5,000, you will be issued a W-2G form to report your winnings on your federal income tax form. For winnings of $5,000.01 and over, your state's Department of Revenue removes the 25 percent federal withholding before you receive your winnings check (or, if it is an annuity, from each winnings check). You then receive a W-2G form with each check to submit with your 1040 form to show that the 25 percent federal withholding already has been paid. In addition to federal tax, your state will make additional withholdings for taxes, and most states will deduct other money that you may owe to the state, such as back taxes, child support, loan payments, etc. In addition, like the federal tax withholding, the state tax withholding at the time of prize payout may not be the total state tax owed at the end of the year. You must consult your state division of taxation for more information about the total state tax requirements for lottery winners.
The state tax withholdings are as follows:
Arizona |
5% state withholding (Arizona residents), 6% state withholding (non-Arizona residents) |
Arkansas |
7% state withholding |
California |
No state tax on lottery prizes |
Colorado |
4% state withholding |
Connecticut |
6.99% state withholding |
Delaware |
No state tax on lottery prizes |
Florida |
No state tax on lottery prizes |
Georgia |
6% state withholding |
Idaho |
7.4% state withholding |
Illinois |
3.75% state withholding |
Indiana |
3.4% state withholding |
Iowa |
5% state withholding |
Kansas |
5% state withholding |
Kentucky |
6% state withholding |
Louisiana |
5% state withholding |
Maine |
5% state withholding |
Maryland |
8.75% state withholding (Maryland residents), 7.5% state withholding (non-Maryland residents) |
Massachusetts |
5% state withholding |
Michigan |
4.25% state withholding |
Minnesota |
7.25% state withholding |
Missouri |
4% state withholding |
Montana |
6.9% state withholding |
Nebraska |
5% state withholding |
New Hampshire |
No state tax on lottery prizes |
New Jersey |
8% state withholding |
New Mexico |
6% state withholding |
New York |
8.82% state withholding, plus: 3.876% (NYC residents), 1.323% (Yonkers residents) |
North Carolina |
5.75% state withholding |
North Dakota |
2.9% state withholding |
Ohio |
4% state withholding |
Oklahoma |
4% state withholding |
Oregon |
8% state withholding |
Pennsylvania |
No state tax on lottery prizes |
Rhode Island |
5.99% state withholding |
South Carolina |
7% state withholding |
South Dakota |
No state tax on lottery prizes |
Tennessee |
No state tax on lottery prizes |
Texas |
No state tax on lottery prizes |
U.S. Virgin Islands |
† Unknown State Tax Rate |
Vermont |
6% state withholding |
Virginia |
4% state withholding |
Washington |
No state tax on lottery prizes |
Washington, D.C. |
8.5% state withholding |
West Virginia |
6.5% state withholding |
Wisconsin |
7.75% state withholding |
Wyoming |
No state tax on lottery prizes |
† This state/jurisdiction has not responded to our requests for this information.
If I live in a state that taxes prizes, but bought my ticket in a state with no tax on prizes, do I still need to pay state tax?
Yes, you do. Think of lottery prizes as regular earned income from a job. Just because you may work in a different state, that doesn't permit you to get away with not paying state income tax in your state of residence. The lottery works the same way.
Whether it's income from a job or income from gambling, the state where the money is won will tax the prize first at their out-of-state tax rate (assuming the state taxes lottery winnings). If your state of residence has the same or lower tax rate, then you won't owe anything else. But if your state has a higher rate, you will get a credit for what you paid in the other state, and pay the difference to your state.
If the other state has no tax, you just pay the entire tax bill to your state.
The net result is that you end up paying whichever tax rate is higher between your state of residence and the state where you purchased the ticket. Of course, the tax law is quite complex and it's possible that some condition or arrangement exists between the two states and a good tax attorney and/or accountant could discover a tax-saving loophole. That's why we always recommend that major prize winners do not make any major decisions before first hiring a good legal and financial team.
One other option to consider, depending on how much in taxes you're looking to save: the residency requirements as they relate to prize claims, state taxes, and income reporting. Since you aren't responsible for paying taxes until you claim the prize, perhaps there is time to establish residency in the state where you purchased the ticket before the prize claim period expires. However, that is something you would definitely need to explore with an attorney before taking any action to assess the feasibility. You would also need to decide if it would be worth the risk of that important little piece of paper not getting lost, damaged, or destroyed in the time you spend arranging everything.