What are federal and California state tax rates on lottery winnings in 2025?
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Executive summary
Federal tax on U.S. lottery winnings in 2025 is subject to mandatory IRS withholding of 24% for reportable prizes and can result in a final federal tax liability up to the top ordinary-income rate of 37% when you file [1] [2] [3]. California does not tax winnings from the California State Lottery — the Franchise Tax Board says “We do not tax winnings from the California Lottery,” so winners in California generally face only federal tax on those prizes [4] [5].
1. How the federal bite works — withholding vs. final tax
The IRS requires automatic withholding on many lottery and gambling prizes: a standard 24% withholding is applied to reportable gambling winnings (commonly those over $5,000) at the time of payment, but that withholding is only a prepayment toward your actual federal income tax. Your total taxable income for the year (including other income) determines your marginal bracket; final federal tax could reach the top ordinary-income rate of 37% once you file, so you may owe more than the 24% withheld [1] [2] [3].
2. Nonresident and foreign-player rules — a steeper upfront cut
If you are a non‑U.S. resident or foreign individual, different rules with heavier withholding apply: many sources note a 30% flat withholding for nonresident aliens on U.S. lottery prizes unless a tax treaty changes that outcome. That 30% is typically taken at payout and may not reflect the final tax outcome if treaty relief or filing options apply (p1_s1; [1]s2 — see combined reporting in p1s1).
3. Why California winners generally pay no state tax on state-lottery prizes
The California Franchise Tax Board explicitly states it does not tax winnings from the California Lottery (SuperLotto, Powerball, Mega Millions) — the FTB page instructs winners to report the full amount on federal Form 1040 but confirms California does not tax those specific lottery winnings [4]. Multiple tax and financial sites repeat that California is among the states that do not impose a state tax on in‑state lottery payouts [5] [6].
4. Conflicting or mistaken takes in public reporting
Some advisory or tax-prep pages and blogs have described California as taxing lottery winnings or implied state tax exposure; for instance, at least one article claims that California’s progressive rates (1%–13.3%) apply to lottery prizes — but that assertion conflicts with the California FTB’s explicit statement that the state does not tax California Lottery winnings [7] [4]. Where sources disagree, the official state tax agency (FTB) is the primary authority and should guide winners’ expectations [4].
5. Practical numbers — examples that reporters and calculators use
Common practical illustrations: calculators and reporting sites show 24% withheld up front and then note winners can owe a larger share when their total income pushes them into higher brackets up to 37% [1] [2] [3]. Several outlets list California among the states that will not take a state cut, so a California-resident winner would commonly face only the federal withholding and any additional federal tax due at filing [1] [6] [4].
6. What winners should do immediately after a big prize
Primary actions recommended across sources: document the win and Form W-2G when issued, consider whether to take lump sum or annuity (which affects taxable income timing), consult a tax or financial professional, and prepare for a federal return that may require paying more than the withheld 24% if the prize pushes you into higher brackets [5] [2] [3]. The California FTB page also advises reporting winnings on your federal return and keeping records if you itemize gambling losses for offsetting purposes [4].
7. Limits and open questions in current reporting
Available sources consistently cover federal withholding (24%) and final top federal rate (37%), as well as California’s stated exemption for California Lottery winnings [1] [2] [4]. Sources do not fully enumerate every nuance — for example, whether multi‑state jackpot rules, buying a ticket out of state, or unusual residency situations change California’s treatment in every specific case — and winners with atypical facts should seek professional advice (not found in current reporting).
Sources cited: California Franchise Tax Board [4]; LotteryValley and state calculator pages summarizing 2025 withholding and top federal rate [1] [5]; NerdWallet and TaxAct explain progressive federal brackets and final tax up to 37% [2] [3]; state-by-state listings and summaries [6].