We explain how they’re different and the pros and cons of each, so you can pick the right option for you.
When you win the lottery, you have the choice of receiving your prize as a lump sum or as an annuity.
FREE TURBOTAX CALCULATOR HOW TO
Whether you’re in a tax-friendly state for lottery income or not, read through the next section for how to calculate your taxes depending on which payout you choose. On the other hand, two other states, Arizona and Maryland, will withhold taxes on your winnings even if you don’t live there. These states are Alabama, Hawaii, Mississippi and Utah.Īlthough Alaska and Nevada don’t have lotteries, if you buy a ticket in another state, you won’t pay state income taxes on any winnings. Four out of the six states without lotteries will still tax your winnings when you report it as income on your annual tax return. It’s important to note that certain states don’t have lotteries at all, but you can always travel across state lines to buy a ticket and win big. *State does not participate in lotteries such as Powerball. To see the 11 states that have no income tax or don’t tax lottery winnings, check out the map below. Federal withholding rate for gambling income: 24%ĭepending on your state, your lottery winnings may also be subject to state income tax.Reference the seven tax brackets below or use our tax bracket calculator to see exactly where you fall. After reporting your winnings and regular income, you may be pushed into a higher tax bracket for that year. You can also expect to pay taxes on these winnings because they are included in your income for the next tax season. Depending on your prize amount, you may receive a Form W-2G Certain Gambling Winningsfrom the lottery organization telling you how much of your winnings were withheld. Federal Tax on Lottery WinningsĪny lottery winnings over $5,000 have taxes withheld using the federal withholding tax rate of 24%. Learn more about federal and state taxes on lottery winnings below. In addition, lottery winnings may also be taxed at the state level, but this varies by state. How Much Are Lottery Winnings Taxed?įor tax purposes, the IRS considers lottery winnings to be gambling income, and under the Internal Revenue Code, they’re subject to federal income tax. Looking to report your latest lottery winnings on your annual tax return? Use TurboTax to accurately report your windfall. Additionally, keep reading to learn more about how lottery winnings are taxed, your options for getting paid and answers to frequently asked questions. To help manage your prize money expectations, use our lottery calculator to estimate how much money goes to taxes and what you actually get to keep. If you’ve ever imagined what it’d feel like to win the jackpot or what you’d do with the financial windfall, we’d bet money that you probably didn’t account for the sizable tax hit that would also come your way. The federal tax rates remain the same for both 2022 or 2023.įor many people, winning the lottery is a dream come true. *This calculator includes state tax rates for 2022 and has not been updated for state tax rates for 2023.
This estimate does not include your total tax you will be required to pay at tax-time based on your overall income and tax rate up to 37%. Disclaimer: Our calculator only estimates the 24 % federal taxes withheld upfront and state taxes required to be paid.
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