You just scanned the ticket. The machine didn’t just beep; it sang. Your heart is doing ninety miles an hour because those six numbers actually matched. You’re rich. Or at least, that’s what the giant cardboard check says. But before you go picking out the leather interior for a car you can't yet afford, there’s a massive reality check coming. Uncle Sam is already standing at the door, and he’s brought a very large shovel.
Knowing how much do you get taxed on lottery winnings isn't just about curiosity; it’s about avoiding a massive financial hangover when April rolls around. Most people think the 24% the government takes off the top is the end of the story. Honestly? It’s barely the first chapter.
The 24% Trap: Why the Withholding Isn't the Full Bill
Here is the thing. When you win a prize over $5,000, the IRS requires the lottery commission to snatch 24% right away. It’s called "mandatory withholding." If you win a million bucks, you’re only walking out of the office with $760,000 in the initial "federal" column.
But wait. The top federal income tax bracket for 2026 is actually 37%.
Since the IRS views your lottery win as "ordinary income"—basically like a really, really big paycheck—that million-dollar win is going to push you into that top bracket almost instantly. The 24% they took at the start was just a down payment. You’ll still owe the difference (another 13%) when you file your tax return. For a $1 million prize, that’s an extra $130,000 you need to have sitting in a bank account, not spent on a gold-plated jet ski.
The New 2026 Rules You Need to Know
There’s a new wrinkle in the law this year. Starting in 2026, the way you deduct losses has changed. In the past, if you won $10,000 but could prove you spent $10,000 on losing tickets throughout the year, you could theoretically wash it out (if you itemized).
Now, thanks to recent adjustments in the tax code, there's a cap. You can generally only deduct gambling losses up to 90% of your winnings in certain scenarios, and the reporting threshold for smaller "jackpot" wins (like slots) has moved to $2,000. For a pure lottery winner, the big takeaway is that the IRS is tightening the belt. They want their cut, and they want it clean.
🔗 Read more: Where Did Dow Close Today: Why the Market is Stalling Near 50,000
State Taxes: From 0% to "Ouch"
Your zip code is the biggest factor in how much of that money actually stays in your pocket. It’s kinda wild how much it varies. If you bought your ticket in Florida, Texas, or South Dakota, you're in luck. Those states (along with a handful of others like California and New Hampshire) don't tax lottery winnings at the state level.
On the flip side, if you're in New York, specifically New York City, prepare for a haircut. New York State can take up to 10.9%, and the city takes another 3.876%. Between federal and local taxes, a New York City winner could easily see nearly 52% of their prize vanish before they even pay for a celebratory dinner.
States with high lottery taxes often include:
- Maryland: Roughly 8.75%
- New Jersey: About 8% for big wins
- Oregon: 8%
- Wisconsin: 7.6%
Basically, if you live in a high-tax state, that "life-changing" money might only be half as life-changing as you thought.
Lump Sum vs. Annuity: The Tax Battle
This is the big choice. Do you want the "Cash Option" now, or the 30-year "Annuity"?
Most people take the cash. We’re human; we want the shiny thing today. But when you take the lump sum, you’re hit with the entire tax bill at once. Because the amount is so huge, every dollar of it (after the first few hundred thousand) is taxed at that top 37% rate.
💡 You might also like: Reading a Crude Oil Barrel Price Chart Without Losing Your Mind
The annuity is different. You get paid over 30 years. Each year, you receive a smaller check. Because that check is smaller, it might not all fall into the 37% bracket. You might have some of it taxed at 22%, some at 24%, and some at 32%. Over 30 years, you could potentially save millions in taxes.
However, there’s a catch: you’re betting that tax rates won’t go up in the future. If Congress decides to raise the top tier to 45% in ten years, your annuity is suddenly a lot less attractive.
The "Non-Resident" Surprise
If you’re visiting the U.S. and win, or if you’re a non-resident alien, the rules get even more aggressive. The IRS generally takes a flat 30% off the top for non-residents. There’s no "wait until April to see your bracket" for most international winners. It’s 30% gone, immediately. Depending on your home country’s tax treaties with the U.S., you might be able to claim some of that back later, but don't count on it being a fast process.
Real-World Math: The $500 Million Dream
Let's look at a quick, messy example. You win a $500 million Powerball.
- The Cash Option: Usually, this is about half the jackpot, so let’s say $250 million.
- Federal Withholding (24%): $60 million is gone before you touch it.
- The April Bill (Remaining 13%): You’ll owe another $32.5 million when you file.
- State Tax (Average 5%): Another $12.5 million.
Total take-home? Roughly $145 million.
That’s still a lot of money, obviously. But $145 million is a far cry from the $500 million advertised on the billboard.
📖 Related: Is US Stock Market Open Tomorrow? What to Know for the MLK Holiday Weekend
What You Should Do the Second You Win
If you find yourself holding a winning ticket, the very last thing you should do is go to the lottery office. Seriously.
First, sign the back of the ticket (unless your state allows you to remain anonymous through a trust, in which case, talk to a lawyer first). Second, hire a "dream team." You need a tax attorney, a Certified Public Accountant (CPA) who has handled high-net-worth clients, and a fee-only financial planner.
You need to plan for the "tax gap"—that difference between the 24% withheld and the 37% you actually owe. If you spend that money before tax season, the IRS will not be "understanding." They will simply lien your new assets and charge you interest that would make a loan shark blush.
Actionable Next Steps for Winners:
- Determine your state's specific withholding rate. Some states don't withhold at all but still expect payment in April; others take it upfront.
- Calculate the "Tax Gap." Set aside at least 15% of your gross winnings in a high-yield account specifically for the IRS.
- Decide on your "Tax Domicile." If you're planning on moving to a tax-free state like Florida, doing so before you claim the prize (if possible) could save you millions, though this is legally complex and requires an expert.
- Keep your old losing tickets. While the 2026 rules have some caps, you can still use losses to offset some of the burden if you itemize. Start a log now.
The thrill of winning is incredible, but the math is cold. Understanding how much do you get taxed on lottery winnings before you claim the prize is the only way to make sure your dream doesn't turn into a bureaucratic nightmare.