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Learn moreLottery Tax Calculator: How Taxes on Lottery Winnings Work
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If you win the lottery, you may want to hit pause before you buy a yacht. You will almost certainly owe taxes on those winnings, and planning for those taxes will save you a headache come tax time.
How much are taxes on lottery winnings?
You don’t have to win the big jackpot to owe lottery taxes. Your winnings are considered taxable and are added to your ordinary income when taxes are calculated.
If your earnings are big enough, they can push you into a higher tax bracket, which means you'll pay a higher rate on part of your income. A large prize, for example, may put part of your income into the 37% tax bracket.
The silver lining is that lottery agencies typically withhold 24% of winnings over $5,000 immediately, which could help offset some of the tax burden you may face on your windfall.
» Dive deeper: Learn how the lottery works
Lottery tax calculator
The lottery calculator below will help you estimate the amount of tax that may be withheld on lump sum lottery winnings. Enter the amount won to estimate potential federal withholding.
How do lottery taxes work?
Like your paycheck, the government considers lottery winnings income. How much tax you’ll owe will depend on your existing income and, by extension, your federal tax bracket. It’s a good idea to check with a tax advisor to see how federal and state taxes might affect your lottery winnings.
See how the tax brackets of two 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.
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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. New Yorkers, for example, could see their winnings taxed at up to 10.9% or more, depending on where in the state they live.
Only a few states — California, New Hampshire, Florida, South Dakota, Tennessee, Texas, Washington and Wyoming — do not impose a state tax lottery winnings.
Keep in mind that even though 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 the 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 expert. These professionals may be able to help you make the most of your winnings and help you set yourself up for financial success long-term.
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
Simple tax filing with a $50 flat fee for every scenario
With NerdWallet Taxes powered by Column Tax, registered NerdWallet members pay one fee, regardless of your tax situation. Plus, you'll get free support from tax experts. Sign up for access today.
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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.
