Lottery tax calculator: How are winnings taxed?

Winning the lottery, whether you win millions or just a few thousand dollars, can have an impact on your financial life. That could mean money to help pay off debt, kickstart your savings or splurge on a big purchase.

But, what are the tax implications of this sudden flow of money? Here’s what you need to know about lottery taxes to maximize your winnings and stay IRS compliant. Hint: You don’t even need a lotto tax calculator to figure out how much you owe—just follow the steps we’ve outlined below!

How do taxes on lottery winnings work?

Tax on lotto winnings works differently from standard salaries and wages. However, lottery winnings are also federally taxable and included in your ordinary taxable income. And, in most cases, your lottery prize is subject to state tax.

The lottery agency immediately withholds 24% of lottery winnings over $5,000, which can lower what you owe the IRS come tax time. For example, on a $100,000 lottery win, the agency withholds $24,000 for federal taxes, leaving you with a take-home amount of $76,000.

When you file your annual tax return, report how much you won and settle the remaining taxes on your annual income tax return.

State lottery taxes are a completely different ball game, and we’ll cover this below.

Lump sum payout vs. annuity payments

When you claim your winnings, you’ll have a choice to make: either a lump sum or an annuity, which is a payout over time. How you take the payout also impacts your taxes. There are two lottery payout options:

• Lump sum: A single, immediate payout. With this option, you owe the entire amount of state and federal taxes for the year you win, which could push you into a higher tax bracket, increasing your tax liability for that year.
• Annuity: Spreading lottery winnings over a fixed period (usually 30 years) in annual payments. Your state’s lottery commission provides initial funding, and then an insurance company takes over to manage the payments and interest.This option disperses your tax liability, which may reduce the likelihood of changing your tax bracket. Annuity payments may also keep you from the temptation to spend your winnings immediately.

The “right” choice depends on your situation, including your age, financial goals, and taxable income/tax bracket.

How lotto taxes work at the state level

Check your specific state tax laws to ensure you’ve met filing requirements, as state-level lottery-winning taxation varies from state to state. The amount withheld and the taxation of winnings depend on your state’s tax rates.

While most states charge a tax on lottery winnings, eight U.S. states don’t tax lottery winnings, including:

1. California
2. Florida
3. New Hampshire
4. South Dakota
5. Tennessee
6. Texas
7. Washington
8. Wyoming

Other states don’t have state income tax. See the no-income-tax states. However, federal taxes still apply to all lottery winnings, regardless of the state lottery you won. And these states don’t have a state lottery at all:

1. Alabama
2. Alaska
3. Hawaii
4. Nevada
5. Utah

Note: If you bought a winning ticket outside of your state of residence, the state where you purchased your ticket may withhold state taxes on lottery winnings, but you could still owe taxes in your home state too. Consult a tax pro to determine what you owe and to what taxing authority.

How much are taxes on lottery winnings?

After all the excitement of winning the lottery dies down, you might be left wondering, “How much are lottery winnings taxed?” Let us explain.

Federal tax brackets are progressive, ranging from 0% to 37%. While a big win can punt you to a higher tax bracket, different types of income are taxed differently, so it’s not a clear-cut formula. In short, the lottery tax calculation combines tax rates to estimate the total tax.

Lottery tax calculator: Review a lottery tax calculation in action

To calculate lottery tax without a calculator, follow these steps.

1. Combine your wages and lottery winnings.
2. Check your tax filing status.
3. Review the current tax brackets, based on your filing status.
4. Break your total taxable earnings into each tax bracket and calculate tax.
5. Add the amounts together.
6. Subtract any federal tax already withheld.
7. Figure out how much more you still owe (if anything).

Federal tax on lottery winnings: An example

You don’t necessarily need a lottery winnings tax calculator to figure out your taxes. Let’s use the steps above to figure out what a lottery winner would owe the IRS.

Fred is a Head of Household tax filer making $60,000 in regular wages during the tax year and wins $50,000 in the lottery. The new influx of lottery money puts his Adjusted Gross Income (AGI) income at $110,000.

Based on Fred’s tax brackets for a Head of Household filer, his non-lottery income of $60,000 would place him in the 12% tax bracket. But with the $50,000 lottery win added, he’ now in the 22% bracket.

Here’s the tricky part. Fred doesn’t pay 22% on $110,000. Instead, he pays each tax rate on the part of the taxable income that falls within each bracket. After he applies the standard deduction, his taxable income is $86,375. Using the 2025 tax brackets he’d pay:

• 10% on the first $17,000 = $1, 700
• 12% on the next $47,849 ($64,850 – $17,000) = $5,742
• 22% on the remaining $21,525 ($86,375 – $64,850) = $4,736

Total federal tax owed:

Adding the above amounts, you arrive at $12,178

$1,700 + $5,742 + $4,736

Since $12,000 was already withheld (24% of $50,000), you owe $176 when you file your return (not counting any other withholding or credits).

$12,178 total tax – $12,000 withheld = $178 balance due.

Note: State and local taxes may apply. Be sure to check with your local taxing authority.

How to report lottery winnings on your taxes

You’ll receive a copy of Form W-2G from your state taxing authority showing you how much you won to help you with your tax reporting if your win exceeds $5,000.

If your winnings are reported on Form W-2G, federal income tax is withheld at a flat rate of 24% (regardless if you’ve provided your Tax ID number).

Lottery winnings reported on W-2G should be reported on Schedule 1 (Form 1040), line 8b. Note that you should report your winnings even if you don’t receive a Form W-2G.

Minimizing your tax burden on lottery winnings

To minimize taxes on lottery winnings, consider annuity payment installments to stay in a lower tax bracket. You can also donate a portion of your winnings to a 501(c)3 nonprofit organization. When you do this, you can deduct the charitable contribution from your taxable income, which could lower your tax bracket.

Taxes on lottery winnings FAQs

Do I have to pay taxes on lotto winnings?

Lottery winnings are taxable income and are treated just like wages or salaries. However, your tax rate depends on your withholdings, filing status, and how you take the payout. The lottery agency will collect and remit federal income tax for the IRS, just as your employer does for a W-2 job.

Who is exempt from paying taxes on lottery winnings?

You’re not exempt from lottery tax unless you’re exempt from paying federal and state taxes.

You can reduce your lottery tax with some savvy strategies, such as gifting a portion of the winnings to charity outright, or setting up a charitable trust.

Should I take a lump sum payment or annuity payments?

Whether or not you opt for lump sum or annuity payments depends on your financial situation, goals, age, and other relevant financial factors.

Pros of taking a lump sum:

• You can reinvest winnings in growth-oriented assets like stocks or bonds
• You can buy a big-ticket item, property, or trip

Cons of taking a lump sum:

• Your payout could be smaller if your tax bracket increases (Note: growth oriented assets carry the risk of loss)
• You could spend money quickly

Pros of taking annuity payments:

• You remain in a lower tax bracket with big wins
• You will receive accrued interest along with the winnings.
• You’ll maintain a steady stream of income over time

Cons of taking annuity payments:

• You might not be able to purchase big-ticket items because you don’t have full access to the winnings

Does winning the lottery impact my Social Security benefits?

When you win the lottery, your Social Security benefits might change, depending on the benefit type:

• Social Security Disability Insurance (SSDI): SSDI benefits remain the same because they reflect lifetime earnings and the amount of Social Security tax paid over time. Even though your SSDI benefits don’t change, it’s wise to notify the Social Security Administration (SSA) about your winnings. Your rate of tax on Social Security income may increase as your income increases.

• Supplemental Security Income (SSI): The SSA could reduce or eliminate your SSI benefits. The SSA takes your total income (including SSI benefits) into account. Because lottery winnings count as income, they could put you over the SSI income limit.

Get help with lottery tax and more

Lottery wins and tax go hand in hand, as nearly every lotto winner owes the IRS.

Now that we’ve answered how much tax on lottery winnings is, and the details of paying lottery taxes, you can feel confident as you file.

 When you’re ready to file your taxes, let us help! Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.