Which US states tax lottery winnings and which provide exemptions or lump-sum rules?
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Executive summary
Most U.S. states treat lottery winnings as ordinary taxable income and will tax them at the state income‑tax rate; several large states — notably California, Florida, Texas and Washington — do not tax lottery winnings because they have no state income tax or don’t withhold on prizes [1] [2]. Federal rules require 24% withholding on sizable prizes and winners can face a final federal marginal rate up to 37%; state withholding rates vary, with New York shown as among the highest (10.9% state, plus New York City local tax of 3.88% in some reporting) while many states show 0% [1] [3] [4].
1. How the federal bite works — upfront withholding vs. final tax bill
The federal government requires lotteries to withhold 24% from winnings above a reporting threshold (commonly cited as $5,000), but that withholding is only a prepayment toward your full income‑tax liability; a large jackpot usually pushes winners into the 37% top bracket, meaning additional federal tax may be due when you file [1] [4]. Several outlets repeat the 24% upfront figure and warn that winners often owe another roughly 13 percentage points to reach the top rate depending on circumstances [3] [4].
2. State variation: “zero tax” states vs. high‑tax states
Reporting consistently divides states into those that levy no personal income tax on winnings (examples repeatedly named include Florida, Texas, and California in the sources) and those that take a significant cut — New York is repeatedly cited as the highest state tax on winnings at 10.9% with New York City adding about 3.88% for residents [2] [3] [5]. WorldPopulationReview and other summaries list a group of states that do not withhold state tax on lottery prizes (California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming are named as not having withholding) while many other states do withhold at various rates [1].
3. Where purchase and residency intersect — cross‑state complications
If you buy a winning ticket outside your state of residence, the withholding rules and tax obligations depend on the jurisdiction that sold the ticket; some states will still withhold even for nonresidents and others will not, and winners can generally claim a credit on their resident state return for taxes paid to another state [6]. Coverage notes that only a few jurisdictions historically tax nonresident winners (examples cited in summaries include Arizona and Maryland as more aggressive about taxing nonresidents), so the place of purchase can matter for the immediate withholding decision even if final liability is resolved at filing [1] [6].
4. Lump sum vs. annuity — tax timing and strategies
Winners must choose between an immediate cash‑value (lump sum) payout and an annuity paid over decades; the choice affects when and how much tax is paid. An annuity means smaller payments taxed each year (possibly keeping you in lower brackets early on) while the lump sum is taxed all at once and is more likely to push you into the top bracket; reporting examples show annuity figures being dramatically reduced after annual federal taxes and state taxation where applicable [2] [4].
5. How much might you actually keep — illustrative numbers in sources
Several outlets illustrate the math: combine federal withholding (24% immediate, potentially 37% final) with state rates that range from 0% to double digits — New York’s 10.9% state rate plus NYC local tax is given as a combined 14.78% local/state bite in examples — producing total tax take that can exceed half of a jackpot in high‑tax locations [3] [5]. Sources use sample jackpots (e.g., $100M or the $930M Powerball) to show millions can be lost to combined federal and state/local taxes depending on residency and payout choice [3] [2] [5].
6. Limits, disagreements and reporting caveats
Available sources differ on lists and emphases: some webpages group California among “no state tax” examples despite California having a state income tax — the cited WorldPopulationReview and other outlets specifically say California does not have withholding on lottery winnings in some contexts, which can be read as “no automatic withholding” rather than “no ultimate tax” [1] [2]. Tax calculators and guides caution final liability depends on your full taxable income, residency, local taxes, and whether you take the lump sum or annuity [3] [7]. Readers should note that the sources are summaries and calculators, not primary state statutes; state rules and withholding practices change and the pieces explicitly advise confirming with state lottery or tax authorities [8] [7].
7. What reporters recommend — practical next steps
The guidance across sources is consistent: expect 24% federal withholding immediately on large prizes, plan for up to the 37% federal marginal rate later, check whether your state withholds or ultimately taxes prizes (especially if you bought the ticket out of state), and consult a tax advisor before claiming — moving residence or choosing annuity vs. lump sum are strategies discussed in published calculators and guides but carry legal and timing constraints [3] [7] [8].
Limitations: this summary uses the cited news and tax‑guide sources provided and does not attempt to reproduce state statutes; for any contested or high‑value claim, consult the state lottery or revenue department because the articles and calculators cited note rates and practices can change [1] [8].