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- The government will withhold up to 50% of the money lottery players receive in these states: How much of the prize goes to taxes?
- What is the way to pay less in taxes?
- Lottery players who win must declare their winnings: What form should be filed?
- The states where there is no income tax and no tax is paid on lottery winnings
In the United States, people who play the lottery and win a jackpot must declare their winnings and know that both state and federal revenue agencies may authorize a deduction for tax rates.
State percentages may vary depending on each state, and federal rates range from 24% to 37%. However, there is an option that spreads the income over a long period of time to keep a lower tax bracket.
The government will withhold up to 50% of the money lottery players receive in these states: How much of the prize goes to taxes?
The Internal Revenue Service (IRS) withholds approximately 24% of any prize over $5,000 and the maximum federal rate of 37% applies to amounts over $640,600 received by single taxpayers.
As for state tax rates, they can be 0% in some counties and up to 10.9% in others. The states that tax lottery winnings are:
- Alabama: 5%
- Arizona: 2.50%
- Arkansas: 4.40%
- Colorado: 4.40%
- Connecticut: 6.99%
- Delaware: 6.60%
- District of Columbia: 10.75%
- Georgia: 5.49%
- Hawaii: 11%
- Idaho: 5.70%
- Illinois: 4.95%
- Indiana: 3.05%
- Iowa: 6%
- Kansas: 5.70%
- Kentucky: 4%
- Louisiana: 4.25%
- Maine: 7.15%
- Maryland: 5.75%
- Massachusetts: 5%
- Michigan: 4.25%
- Minnesota: 9.85%
- Mississippi: 5%
- Missouri: 4.80%
- Montana: 6.75%
- Nebraska: 6.64%
- New Jersey: 10.75%
- New Mexico: 5.90%
- New York: 10.90%
- North Carolina: 4.50%
- North Dakota: 1.95%
- Ohio: 3.50%
- Oklahoma: 4.75%
- Oregon: 9.90%
- Pennsylvania: 3.07%
- Rhode Island: 5.99%
- South Carolina: 6.40%
- Utah: 4.65%
- Vermont: 8.75%
- Virginia: 5.75%
- West Virginia: 6.50%
- Wisconsin: 7.65%
What is the way to pay less in taxes?
The way to pay less in taxes, or at least not feel such a hit from spending so much money at once, is to receive the prize in annual payments over 30 years.
This happens because if you receive it all at once, the IRS considers that money part of your annual income, something that almost always pushes you into higher tax rates.
Lottery players who win must declare their winnings: What form should be filed?
Those who win the lottery will have to file forms W-2G and 5754 with the IRS, which are special for gambling winnings and include both the lottery and:
- Animal races
- Raffles, bets and lotteries
- Bingo, Keno and slot machines
- Poker tournaments
- Sports betting.
The states where there is no income tax and no tax is paid on lottery winnings
There are some states where no state taxes are charged on lottery winnings and only federal taxes apply to the prize:
- Alaska
- California
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming