Winning the lottery is an exciting moment, but before you can fully enjoy your windfall, it’s important to understand how much of your prize will be taken in taxes. A lottery tax calculator helps you estimate how much you will owe in taxes depending on your location, the size of your winnings, and how you choose to receive the payout.
Lottery Tax Calculator
Results
| Lump sum | Annuity | Difference | |
|---|---|---|---|
| Payout* | |||
| Federal tax | |||
| State tax | |||
| Net payout |
* The gross lump sum payout percentage is approximated by 52% - you can change it in the specifications.
How to Use the Lottery Tax Calculator
If you’ve won the lottery, our lottery tax calculator is a valuable tool to help estimate how much tax you’ll need to pay. Here’s a step-by-step guide to using it effectively:
- Enter your winnings: Start by inputting the total amount you’ve won in the lottery.
- Choose your payout option: Decide between receiving a lump sum or an annuity and enter the relevant information.
- For a lump sum, enter the percentage of the total prize that will be paid upfront.
- For an annuity, input the total payout amount over time.
- Select your filing status: Choose your federal tax filing status (single, married, filing jointly, etc.).
- Pick your state: Select the state where you live to account for local tax rates.
- Review your results: The calculator will provide a detailed breakdown of the taxes owed, including federal, state, and local taxes, and show your final payout amount after taxes.
- View annuity schedule (if applicable): If you opted for an annuity, you’ll receive a yearly breakdown showing how much you’ll receive, including tax deductions.
How Do Lottery Taxes Work?
Lottery winnings are subject to both federal and state taxes, and in some cases, local taxes as well. The taxes you owe can significantly reduce the amount you take home, so it’s a good idea to use a lottery winnings tax calculator to estimate your tax burden before making any financial plans.
Federal Taxes
In the United States, lottery winnings are considered taxable income, and federal taxes are applied accordingly. The amount of tax you owe depends on the size of your prize and your overall annual income. The federal government automatically withholds 24% of winnings over $5,000, but this may not cover your total tax obligation if your total earnings for the year push you into a higher tax bracket. The table below summarizes the tax obligations for lottery winners:
| Prize Range | Federal Tax Obligation | Notes |
|---|---|---|
| $0 – $600 | No deductions | No need to report the winnings. |
| $600.01 – $5,000 | Winnings must be reported on a federal income tax form | You will receive a W-2G form to submit with your tax returns. |
| $5,000.01 and above | 24% initially withheld; additional tax may apply | Federal taxes range from 24% to 37%, depending on your total annual income and prize amount. |
| Non-U.S. Citizens | 30% of winnings withheld | Non-citizens are subject to a higher initial withholding tax rate. |
Deductions for Gambling Losses
It’s important to note that if you have any gambling losses, you can deduct these from your lottery winnings to lower your taxable income. However, you can only deduct losses up to the amount of your winnings. To do this, you must itemize your deductions, which may reduce your overall tax burden.
State Taxes
Each state has its own rules when it comes to taxing lottery winnings. Some states don’t tax lottery winnings at all, while others have high tax rates. Using a lottery tax calculator by state will help you understand how much state tax you owe based on where you live.
Here are the states where you won’t face state income tax on your lottery winnings:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Additionally, these states do not specifically tax lottery winnings:
- California
- Delaware
The table below provides a summary of the state withholding tax rates for lottery winnings, along with the minimum prize amounts that trigger the state tax.
| State | Tax Rate | Threshold for State Tax |
|---|---|---|
| Arizona | 4.8% | Undisclosed |
| Arkansas | 4.9% | Undisclosed |
| Colorado | 4% | $5,000 |
| Connecticut | 6.99% | $5,000 (or winnings of $600 or more) |
| Georgia | 5.75% | $5,000 |
| Idaho | 6.5% | $5,000 |
| Illinois | 4.95% | $1,000 |
| Indiana | 3.23% | $1,200 |
| Iowa | 5% | $5,000 |
| Kansas | 5% | $5,000 |
| Kentucky | 5% | Undisclosed |
| Louisiana | 4.25% | $5,000 |
| Maine | 7.15% | $5,000 |
| Maryland | 8.95% | $5,001 |
| Massachusetts | 5% | $5,000 |
| Michigan | 4.25% | $5,000 |
| Minnesota | 7.25% | Undisclosed |
| Mississippi | 3-5% | 3% ($600-$5,000), 5% (over $10,000) |
| Missouri | 4% | $600 |
| Montana | 6.9% | $5,000 |
| Nebraska | 5% | $5,000 |
| New Jersey | 5-8% | 5% (up to $500,000), 8% (above $500,000) |
| New Mexico | 6% | $5,000 |
| New York | 10.9% | $5,000 |
| North Carolina | 5.25% | Undisclosed |
| North Dakota | 2.9% | $5,000 |
| Ohio | 4% | $5,000 |
| Oklahoma | 4% | $5,000 |
| Oregon | 8% | $1,500 |
| Pennsylvania | 3.07% | $5,000 |
| Rhode Island | 5.99% | $5,000 |
| South Carolina | 6.5% | $500 |
| Vermont | 6% | $5,000 |
| Virginia | 4% | $5,000 |
| Washington D.C. | 8.5% | $5,000 |
| West Virginia | 6.5% | $5,000 |
| Wisconsin | 7.65% | $2,000 |
Additionally, some states have different tax rates for residents and non-residents. For instance, if you win the lottery while visiting a state that has a tax on lottery winnings, you may still be subject to taxes even if you don’t live there.
Local Taxes
In addition to federal and state taxes, many cities, counties, and municipalities across the U.S. impose their own local income taxes on lottery winnings. These local taxes are added on top of federal and state taxes, which can significantly impact your overall take-home amount. For instance, New York City applies a local income tax rate of up to 3.876%, in addition to the state’s top rate of 10.9% and the federal rate of 24%.
Tax on Lump Sum vs. Annuity Lottery
When you win the lottery, you usually have two options for receiving your payout: a lump sum or an annuity. Each option has different tax implications, and choosing the right one depends on your financial goals.
- Lump sum: If you choose a lump sum payout, you receive all your winnings at once, but the amount is significantly less than the advertised jackpot. This is because lotteries offer a smaller cash value, which is typically around 60% of the jackpot amount.
- Annuity: If you choose the annuity option, your winnings are paid out over a set period, usually 30 years. Each annual payment is subject to taxes in the year it is received. While you may end up paying more in total taxes over time, the annuity option provides a consistent stream of income and may be a better choice for long-term financial planning.
| Lump sum | Annuity | |
|---|---|---|
| Pros | Immediate access to funds gives you the flexibility to invest and potentially generate higher returns over time. | The annuity provides a consistent stream of income, which can be ideal for long-term financial planning. It helps reduce the risk of quickly depleting your funds. |
| You maintain control over your winnings, providing liquidity that allows for large purchases or debt repayments. | Taxes are deferred until each payment is made, which could be advantageous if tax rates decline in the future. | |
| Cons | Managing such a large financial windfall can be overwhelming, and poor financial decisions may lead to bankruptcy or financial difficulties. | Limited access to funds may be problematic if you encounter an emergency or want to make large investments. |
| A significant lump sum can push you into a much higher tax bracket, meaning a larger portion of your winnings will be subject to federal and state taxes. | Future tax rate increases could mean paying more in taxes over the years than anticipated. |
By carefully weighing the pros and cons of each option, you can use the lottery winnings tax calculator to make a decision that aligns with your financial strategy and future needs.
FAQ
Your take-home amount depends on federal, state, and local taxes, as well as your payout option. A lottery payout calculator can provide an accurate estimate based on these factors.
Yes, but only up to the amount of your winnings.
No, lottery winnings are not considered earned income, so they won’t reduce your Social Security benefits.