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Which states tax lottery winnings in 2025 and at what rates?
Executive Summary
Most U.S. jurisdictions tax lottery winnings as ordinary income in 2025; eight states (California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) do not tax those winnings, while the remaining states and the District of Columbia apply state income tax at widely varying rates. Federal withholding and top‑bracket exposure remain separate issues: the IRS requires federal reporting and withholding procedures while state withholding and tax treatment differ by state [1] [2].
1. What the competing analyses actually claim—and what they agree on
The analyses unanimously assert that lottery winnings are taxable at the federal level and that most states treat such winnings as taxable income; several independent pieces identify the same eight states that do not tax lottery prizes (California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming). Sources diverge on exact state rates and rankings, but they consistently note that states with personal income taxes typically include lottery income in taxable income and that federal withholding (commonly 24% initially) is separate from any state tax liability [3] [2] [4]. This shared framework frames the rest of the disagreement: differences are about precise percentages, resident vs. nonresident withholding, and whether published tables reflect withholding or statutory marginal rates.
2. Who doesn’t tax and why that list is consistent across sources
Multiple reputable compendia and tax‑advice sites list the same eight states that do not impose a state income tax on lottery winnings, a finding confirmed across contemporary guides and calculators in 2025. The consistency reflects structural state tax policy: states without a broad personal income tax, or those that specifically exempt gambling proceeds, omit lottery payouts from taxable income; this produces a clear, widely reported set of exemptions that tax guides use when advising winners about immediate take‑home amounts and withholding expectations [1] [2]. The repeated listing across sources indicates a low likelihood of error on this point, though temporary legislative changes could alter the list in future sessions.
3. Which states impose the heaviest bite—and why figures differ between tables
Published rate tables identify New York, Maryland, and the District of Columbia among the highest state tax burdens on lottery winnings in 2025, with other high‑rate states including Oregon, New Jersey, and Wisconsin; low‑rate examples include North Dakota, Pennsylvania, and Indiana in several compilations [1] [5]. Differences between sources arise because some publishers report top marginal income‑tax rates, others report flat withholding schedules for nonresidents, and yet others publish effective withholding estimates for lump‑sum prizes. The practical takeaway is that a winner’s actual tax owed depends on residency, filing status, and whether the prize is taken as a lump sum or annuity, so headline rates in a table can overstate or understate a winner’s final state tax bill [3] [4].
4. How federal withholding and residency rules complicate “what you’ll pay”
All sources emphasize that federal tax rules operate separately: the IRS requires reporting of lottery income and typically mandates 24% withholding on large prizes, with eventual reconciliation at filing that can push liability up to the top rate (up to 37% federally). State rules layer on top: some states withhold on nonresident winners at different rates, and a state might tax nonresidents differently than residents, creating cross‑jurisdictional liabilities for winners who bought tickets out of state or live in states with reciprocal rules [6] [2]. The result is a multi‑step reality: initial cash withheld is a rough indicator, not the final tax bill, and winners should consult tax professionals about state reciprocity, residency, and annuity vs. lump‑sum elections.
5. Where sources disagree, and what to watch for next
Discrepancies across published tables stem from differences in methodology, publication date, and whether the figure is a statutory top rate, a withholding rate, or an effective tax estimate; some compendia (updated mid‑2025) reconcile these differences, while older compilations may reflect past law or show withholding rather than statutory rates [1] [5]. Readers should note potential agendas: calculators and tax‑prep sites may emphasise withholding to sell services, while financial media prioritise neat rankings. For a definitive answer for any individual situation in 2025, consult the state tax authority’s current guidance and the latest IRS rules; the publicly cited tables are a useful starting point but not a substitute for personalized tax advice [2] [3].