The US Lottery Tax Guide
Did you just win a US lottery prize and don’t know where to start? Or maybe you’re just curious in case your lucky numbers strike gold in the upcoming Mega Millions draw. Many foreign lottery players have questions about US lottery taxes, which can be a little intimidating even to American citizens. If you’re playing US lotteries, this article is a must for when you win big!
How Are Taxes on US Lottery Winnings Calculated?
US jackpot prizes are advertised before the deduction of taxes, and several factors go into calculating how much of your US lottery prize will need to be given back to Uncle Sam:
How much you win
The size of your prize indicates the tax rate your winnings will be subject to. Lottery winnings up to US$599.99 are tax-free. Anything above this amount is taxed as income and 24% will be withheld before the winner receives any of the money.
Where your ticket was purchased
Each state has their own laws regarding lottery winnings, which usually range from tax-free to 10.9%.
How much you earn
Most prize winners pay a fixed federal income tax rate of 24% on their lottery winnings over US$599.99. However, if your newfound wealth puts you in the top tax bracket, this rate increases to 37%. Lottery winnings are combined with the rest of your taxable income for the year, meaning that your income and lottery winnings will be taxed together.
How you receive your prize
Do you prefer to receive your winnings as a one-time cash payout or in annual instalments? Whichever option you choose will make a difference in how much of the prize you’re awarded. Either way, you’ll probably be interested in knowing how long does it take to get your lottery winnings.
Which Taxes Do You Have to Pay on US Lottery Winnings?
What differentiates US lottery taxes from other countries is that winnings can considered taxable income for both federal tax and state tax.
Any lottery prize above US$600 will be taxed the same as your wages or salary and the state lottery will automatically withhold 24% for federal income tax.
On the other hand, each state has their own laws on the taxation of lottery winnings. Most states subject winnings to a tax rate ranging anywhere between 2.9% – 10.9%. Each state has their own tax threshold and only prizes exceeding this amount will be subject to taxation. However, there are several states that award winnings tax-free, no matter how big the prize!
For example, the state of Oregon has a state tax threshold of US$1,500. If you win this amount or more, your prize will be subject to an 8% tax rate in addition to the 24% federal tax.
| State Name | State Tax | State Tax Threshold |
|---|---|---|
| Arizona | 4.8% for residents6% for non-residents | US$5,000 |
| Arkansas | 7% | US$5,000 |
| California | No tax | n/a |
| Colorado | 4% | US$5,001 |
| Connecticut | 6.99% | US$5,000 (or winnings of $600 or more that are at least 300 times the amount of the wager placed) |
| Delaware | No tax | n/a |
| Florida | No tax | n/a |
| Georgia | 5.39% | US$5,000 |
| Idaho | 5.695% | US$5,000 |
| Illinois | 4.95% | US$1,000 |
| Indiana | 3.23% | US$1,200 |
| Iowa | 5% | US$5,000 |
| Kansas | 5% | US$5,000 |
| Kentucky | 5% | US$5,000 |
| Louisiana | 6% | US$5,000 |
| Maine | 7.15% | US$5,000 |
| Maryland | 8.75% for residents8% for non-residents | US$5,001 |
| Massachusetts | 5% | US$5,000 |
| Michigan | 4.25% | US$5,000 |
| Minnesota | 7.25% | US$5,000 |
| Mississippi | 3% | US$600 |
| Missouri | 4% | US$600.01 |
| Montana | 6.9% | US$5,000 |
| Nebraska | 5% | US$5,000 |
| New Hampshire | No tax | n/a |
| New Jersey | 5%-8% | 5% for prizes above US$10,000 and up to US$500,000 and 8% for prizes above US$500,000 |
| New Mexico | 6% | US$600 |
| New York | 10.9% | US$600 |
| North Carolina | 4.25% | US$600 |
| North Dakota | 2.9% | US$5,000 |
| Ohio | 4% | US$600 |
| Oklahoma | 4.75% | US$5,000 |
| Oregon | 8% | US$1,500 |
| Pennsylvania | 3.07% | US$600.01 |
| Puerto Rico | No tax | n/a |
| Rhode Island | 5.99% | US$5,000 |
| South Carolina | 6.2% | US$500 |
| South Dakota | No tax | n/a |
| Tennessee | No tax | n/a |
| Texas | No tax | n/a |
| Vermont | 6% | US$5,000 |
| Virginia | 4% | US$5,000 |
| Washington | No tax | n/a |
| Washington, D.C. | 8.5% | US$5,000 |
| West Virginia | 4% | US$5,000 |
| Wisconsin | 7.65% | US$2,000 |
| Wyoming | No tax | n/a |
Lump Sum vs Annuity
When you win a big lottery prize, you’re given two options for receiving it: lump sum (a one-time cash payout) or annuity (annual payments).
A lump sum payout will award you the cash value of the entire prize, minus federal and state income tax which are paid upfront. A one-time cash payment is the best route to take if you want to use your winnings to pay for big items in one go, like a car or home. You might also receive an even larger return if you invest it correctly.
If you prefer to get your prize in yearly instalments, you can pick the annuity option. For example, Mega Millions offers winners annual payments stretched out over 29 years (1 initial payment and 29 annual payments).
The way annuity payouts work, you actually end up with more prize money in the long haul. The state lottery invests your winnings in various government securities, and with each payment, the winner will also receive any interest earned. Every instalment is charged at the current tax rate, which means a potentially lower tax payment on your annual instalment!
Another reason why many players choose this option is that it offers a steady stream of cash. If you’re a big spender, annuity will definitely keep you from blowing through all of your winnings at once.
Is There a US lottery Tax for Foreigners?
Wherever you are in the world, you can win prizes from US draws like Powerball, Mega Millions, and Texan lotteries when you play online at TheLotter. However, just like American players, you’ll be expected to pay taxes when you win. The amount deducted from your prize will depend on the state where your ticket was purchased, and the size of your prize.
Non-US residents who win a lottery prize exceeding $599.99 will have their winnings withheld at a 30%-38.8% rate. In addition, state income tax will also be deducted. While most states deduct the same amount for all winners, some have a special tax rate for non-residents. This means that you will pay a different tax rate if you don’t live in the state where the ticket was purchased.
Check our lottery tax page to learn more.
How Does TheLotter Pay Out US Lottery Prizes?
After TheLotter has confirmed that you are indeed a prize winner, you will receive an email with all the details of your win. Most secondary prizes will be claimed on your behalf by our local representative and immediately transferred to your TheLotter account for withdrawal. If you’re lucky enough to win a jackpot or large secondary prize (over US$50,000), you will need to collect your winnings in person. In this case, TheLotter will provide any legal assistance required and may elect to fly you out for prize collection!
How Do I Pay Taxes on US Lottery Winnings?
It might seem like a daunting task, but paying taxes on your lottery winnings is actually a breeze! US prizes are subject to taxation at source. This means that they are deducted directly by the lottery organisation, the federal government, and the state where your lottery ticket was purchased. Once these taxes have been deducted from your winnings, TheLotter will deposit the entire post-tax amount into your online account for withdrawal.
It’s important to note that in addition to the US lottery tax for foreigners, you may also need to pay income tax in your country of residence. We suggest that you consult with a financial advisor and accountant when you win any large sum of money, such as a jackpot, to find out which tax(es) may apply to your prize and how much will be deducted.
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.