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How Taxes on US Lottery Winnings Work
Did you just win a US lottery prize? Or are you hoping luck will strike soon? Did you try the US Powerball? It offered the biggest jackpot in the world not long ago: US$204 Crore scooped by a single ticket in November 2022. See below how much taxes on US lottery winnings you could have to pay after scooping such a prize.
Please Note: This article regarding taxes on US lottery winnings is provided for information purposes only.
The information provided here is not intended to be and does not constitute financial advice. The data collected is of general use and may not apply to your specific case.
If you won a large US prize we advise you to contact a qualified and registered tax accountant or a lawyer specialized in taxation.
Do You Pay Tax on US Lottery Winnings?
Yes, any lottery winner that scoops a large prize in the US will end up paying between 25% to 45% tax to the state. We should mention that prizes under US$600 are usually tax-free. Also, if you do not live in the US, you may have local taxes to add to that amount.
The tax rate can range from 25% to 45%
Now, 25 to 45 % may sound quite vague, but this is because the amount of tax on your US lottery winning is influenced by a few things:
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The amount of the prize you won
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If you are a US resident or not
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Where your winning lottery ticket was purchased
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The way you collect your prize (annuity or cash option)
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Which US lottery you won
You can find more details on how each of these factors influence the tax on your US lottery winnings further in this article.
How Much Tax do US Lottery Winners Pay?
In US, a net lottery winning (of over US$600) is considered an ordinary taxable income by the IRS. The IRS directly withholds a part as the rest will depend on your tax bracket (which, in turn, depends on your winnings and other sources of income). Afterwards, some local taxes may also be added.
How Does the Amount You Win at a US Lottery Influence Taxes?
If you win less than US$600 at the USA Mega Millions or any other US lottery, prizes will generally be tax-free. However, for prizes of US$600 and more: the corresponding tax rate of about 30% will be applied.
So, on a US$1,000 prize, US$600 will be exempt of taxes while US$400 will be tax deductible. If you are not a US citizen, we strongly suggest you to contact a financial expert (tax accountant, lawyer specialized in taxation...), as a double taxation criteria could apply (depending on where you reside and local taxation system).
e.g.: if you win US$1,000, you will pay about US$120 in taxes as (US$1,000 - US$600) X 30% = US$120.
Please note: When you buy online lottery tickets on LottoSmile and win less than US$1,200, you receive the full amount directly onto your account, (minus taxes, when applied).
Does Being A Resident Influence the Taxes You Pay on US Lottery Winnings?
Yes, depending on whether you live in the US or not, you will have to pay slightly different taxes on US lottery winnings:
Residents pay 25% federal taxes + state taxes + local taxes to the city where the ticket was purchased*
Non-residents pay 30% federal taxes + state taxes + local taxes to the city where the ticket was purchased* + local taxes to your country of residency
*Where applying - some cities apply taxes on lottery winnings while other don't - you can see more in our dedicated table lower in this article.
The state where the ticket was purchased also influences this percentage, such as the country where you live. However, it seems to be agreed by experts that, generally, taxes shouldn't exceed 45% of the total prize.
Do Foreigners Pay Tax on US Lottery Winnings?
Yes, of course. Actually, foreigners may end up paying slightly more taxes than US residents when winning a US big prize. To start off, US winnings are taxed federally and at state level. Foreigners may have to also pay local taxes in the country they live in.
If you won a life-changing jackpot but do not live in the States, we advise you to contact an expert, as tax fees depend on the taxation law of your country of residency.
How does Where a Lottery Ticket Was Purchased Influence Taxes?
The different states of America have different rules, including regarding taxation on lottery winnings. As you can see on the map below and/ or in the table we prepared for you, you will see that state taxes range from 0% to more than 8% depending on where you purchased your winning ticket.
As you can see, California, Florida or Puerto Rico don’t apply any extra taxation on lottery winning but New York or Washington add a lottery winnings tax of 8%. If you get the chance to choose where you get your ticket, you might want to learn more about where it is more interesting to get it:
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Arizona
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4.8% for residents
6% for non-residents
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US$1,73,13,750
US$1,59,89,400
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Arkansas
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5.90%
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US$1,69,98,093
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California
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No Tax
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US1,70,10,000
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Colorado
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4%
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US$1,70,03,196
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Connecticut
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6.99%
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US$1,69,98,110
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Delaware
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No Tax
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US$1,70,10,000
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Florida
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No Tax
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US$1,70,10,000
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Georgia
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6%
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US$1,69,99,794
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Idaho
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6.925%
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US$1,69,97,413
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Illinois
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3.75%
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US$1,70,03,621
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Indiana
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3.4%
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US$1,70,04,217
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Iowa
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5%
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US$1,70,01,495
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Kansas
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5%
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US$1,70,01,495
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Kentucky
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6%
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US$1,69,99,794
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Louisiana
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5%
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US$1,70,01,495
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Maine
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5%
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US$1,70,01,495
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Maryland
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8.95% for residents
8% for non-residents
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US$1,66,30,313
US$1,57,34,250
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Massachusetts
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5%
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US$1,70,01,495
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Michigan
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4.25%
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US$1,70,02,771
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Minnesota
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4%
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US$1,70,03,196
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Missouri
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4%
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US$1,70,03,196
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Montana
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6.9%
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US$1,69,98,263
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Nebraska
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5%
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US$1,70,01,495
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New Hampshire
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No Tax
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US$1,70,10,000
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New Jersey
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6%
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US$1,69,99,794
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New Mexico
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6%
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US$1,69,99,794
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New York
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(state) 10.90%
(city) 3.876%
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US$1,69,94,997
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North Carolina
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5.75%
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US$1,70,00,219
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North Dakota
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2.9%
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US$1,70,05,067
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Ohio
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4%
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US$1,70,03,196
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Oklahoma
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4%
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US$1,70,03,196
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Oregon
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8%
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US$1,69,96,392
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Pennsylvania
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3.07%
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US$1,70,04,778
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Puerto Rico
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No Tax
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US$1,70,10,000
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Rhode Island
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5.99%
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US$1,69,99,811
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South Carolina
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7%
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US$1,69,98,093
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South Dakota
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No Tax
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US$1,70,10,000
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Tennessee
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No Tax
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US$1,70,10,000
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Texas
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No Tax
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US$1,70,10,000
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Vermont
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6%
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US$1,69,99,794
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Virginia
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4%
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US$1,70,03,196
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Washington
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No Tax
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US$1,70,10,000
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Washington, D.C.
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8.5%
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US$1,69,95,542
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West Virginia
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6.5%
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US$1,69,98,944
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Wisconsin
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7.75%
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US$1,69,96,817
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Wyoming
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No Tax
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US$1,70,10,000
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Which Are the American States With the Lowest Taxes on Lottery Winnings?
There are 10 states that do not charge any tax on lottery winnings: California, Delaware, Florida, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington and Wyoming + Puerto Rico. This means you will get more value of your prize if you purchased your ticket in any of these 10 states than any other one.
Which is the Best American State to Win the Lottery?
Well, as the tax system on lottery winnings may differ from one state to an other, there are states in which it is better to win that others as you would end up with a bigger amount of the prize after tax deduction. This is the case in California, Delaware, Florida, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wyoming and Puerto Rico as do not apply any state tax on lottery winnings.
How to Maximize US Lottery Winnings?
Well, make sure to buy your lottery ticket from one of the 10 American states that do not tax lottery winnings or from Puerto Rico. Like this, you will remain with a bigger amount – this is what we call maximizing your lottery winnings!
However, this is not possible when you choose to play online. On LottoSmile we will send you a proof of purchase before the draws take place and you will be able to see all details about where your tickets were bought on your personal account.
How Can You Pay less Taxes on US Lottery Winnings?
Well, you can't avoid paying tax on US lottery winning but you can pay less tax if you choose wisely the state in which you get your US lottery ticket as there are states that tax less or not at all. So, if you choose one of those and combine it with choosing the annuities, you will pay the least tax on your winnings.
Are Your Lottery Winnings Taxes Influenced by the Way You Choose to Receive Your US Jackpot?
Yes! Choosing the annuities over 30 years or the single Cash payment for a big US jackpot will influence the tax amount. Here is how:
Lump Sum Payment
When you choose the lump sum payment, you actually get the cash value minus the relevant taxes & expenses (associated with transferring such an amount of money at once for instance).
So, let's say you would win US$20 Crore. The cash value would be of approximately US$14 Crore. So, you will have to pay a % of tax on the US$14 Crore.
Annuities
The main expense with the lump sum payment is due to the transfer of such an amount of money in once. Choosing the annuities reduces the amount to small sums every year, over 30 years (around US$60 Lakh each). There will still be taxes to pay every time on the amount received. This also means that the amount of tax on these US lottery winnings will vary and can be influenced by inflation for instance.
If we take the example from above in which you win US$20 Crore but choose the annuity payment, you will pay around US$20 Lakh in taxes, every year.
What Happens After You Win on LottoSmile?
Once you win on {SUB_SITE_NAME#}, you will receive an email with all the details of your win to start off. You see, LottoSmile is a safe & serious platform for Indian players.
Smaller secondary prizes will be claimed on your behalf by our local representatives and transferred right away to your LottoSmile account. You will be able to withdraw the amount right after. However, things might be a bit different if you win a jackpot or a larger secondary prize (US$50,000). In this case, you may have to travel to collect the winnings in person. Don't worry, LottoSmile's team will be by your side all through the prize collection process! Learn more on how to get the money after a lottery win.
So, if you don't live in the United States but win a US prize:
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Of less than US$600 - you won't have to pay tax on your US lottery winnings in the States, but you may have to pay some tax to the country where you live.
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Of more than US$600 and less than US$1,499.99 - you will pay a federal rate of 30%.
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Of US$1,500 and more - you will pay taxes between 30% and 44% (depending on the state and city where the ticket was purchased).
We wish you the best of luck!
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