Lottery Tax Calculator For USA

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Lump Sum Amount After Tax: $0

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The State Lottery Tax Calculator for USA

When it comes to paying taxes, your gambling income is treated the same way as wages or salary. It means that whether you choose the lump sum or annuity option, your lottery winnings are listed under income tax, and you need to report them on your tax return. In the United States, winners are subject to paying federal and state taxes on their prize money —unless the state you live in does not levy an individual income tax or tax lottery winnings. In that case, the IRS takes one-fourth of the advertised prize amount, and you get to keep the rest.

The federal taxes are 25%, while the state tax is different for each state. It is worth noting that some states don’t have a state tax, but they still have federal taxes. The states with no income tax are Florida, Texas, Washington, Nevada, Wyoming, New Hampshire, South Dakota, Tennessee, and Alaska.

Lottery Tax Calculator For USA

Furthermore, some states use a flat tax system (e.g., Colorado, Michigan, North Carolina, Pennsylvania), while others use progressive tax systems, taxing higher income levels at a greater percentage rate. For instance, the lowest tax bracket in West Virginia offers a 3% tax rate, while the highest one grows to a 6.5% tax rate.

Using the tax calculator is crucial to determining how much the state taxes will lower your final prize amount. With this tool, you can quickly determine your final payout value and learn how much money actually stays in your pocket.

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Federal and state tax for lottery How Does the Lottery Tax Calculator Work?

The lottery tax calculator helps you establish how much of the estimated jackpot amount will be taken by the state and federal tax rates. In other words, it calculates how much cash is owed in federal tax and state taxes, as well as how much of your prize money will remain untouched.

Depending on the size of your winnings and state taxes, you can get different results. Nevertheless, the largest percentage of your lottery winnings that can be withheld in state and local taxes is 13%.

Of course, some additional taxes might also come into play. For instance, New York City charges citizens who play the lottery an additional 4%. Nonetheless, using the tax calculator is the fastest way to estimate how much money you owe at the federal and state level.

Lottery Lump Sum vs. Annuity Calculator

There are two types of lottery payments — the winner can opt for the cash lump sum payout or settle for the annuity payout. Although both of these options offer unique advantages, most experts recommend choosing the former, as it allows the lucky winner to withdraw all of their winnings and invest them in profitable stocks and shares. Here is a short comparison of these two payment methods.

Lump Sum

Lump sum, also referred to as the cash option, is the more prevalent payment method out of the two. While it may offer less money than the annuity payout, it gives you access to all of your lottery winnings right away. Besides, it is much more convenient to calculate, and you only need to put it once in your tax return.

Lottery lump sum calculation is pretty straightforward and involves providing the lottery calculator with the total winnings and selecting the state where you purchased your lucky ticket. The algorithm does the rest of the work, completing all the necessary calculations for you.

Annuity Payments

If you choose this option, you will receive winnings in the form of annual payments — one payment per year. These payments will be recorded individually in each tax year, which will count towards your taxable income for every year until you receive all of your due money.

With this method, investing in lottery winnings in higher-return assets can be much more challenging. However, on the flip side, you get to take advantage of your tax deduction each year, avoid entering high federal tax brackets and lower your state income tax rate.

To calculate your tax liability, besides entering details of your prize amount and where you purchased the ticket, you may also have to provide the increment and the period throughout which you will receive your lottery winnings.

Federal and State Tax for Lottery Winnings on Lump Sum Payment in the USA

It is hard to disagree that lottery taxes are complicated, especially when we consider they can be subject to change. For example, fluctuation in the amount of money you get after taxes may occur due to changes in tax requirements, payout structures, or lottery rules. Nevertheless, some aspects of collecting lottery winnings always stay the same.

Multi-state lottery and state lottery players should pay special attention to two significant factors — federal withholding and state taxes. These two elements constitute the majority of issues players have to face on their way to claiming their prize.

Federal Tax

Federal taxes are usually the first problem you will encounter after winning the lottery. Although the top federal tax rate is 37%, by using investment strategies and a financial advisor’s help, you can usually move to the lower federal tax bracket and avoid losing most of your money due to taxation.

The main thing to remember is that the federal tax may vary depending on the federal tax brackets. The higher the tax bracket, the bigger the part of your lottery winnings that is taken by the IRS. Fortunately, if your prize amount falls between $600 and $5,000, you do not owe any federal tax and can forgo including your lottery winnings in a tax return. Still, you need to report the sum you won on a federal income tax form.

State Tax

As lottery winnings are part of your taxable income, some states subject the winners to pay state taxes. If you live in such a state, you have to deduct even more money from your lottery winnings. The exact amount you have to pay depends on tax rates in your state, the amount of cash you won, and other individual circumstances.

Top 10 states with the highest taxes on lottery winnings

Even though most states place state tax on lottery winnings, some of them take a higher percentage than others. Here is a list of the top ten states with the highest taxes regarding lottery winnings.

New York8.82%
Maryland8.75%
New Jersey8.00%
Oregon8.00%
Wisconsin7.65%
Minnesota7.25%
Arkansas7.00%
South Carolina7.00%
Connecticut6.99%
Idaho6.92%

Taxes On Lottery Winnings by State 2021

Here is a breakdown of withholding rates for every state in the United States.

StatePostalState tax
AlabamaAL0.00%
AlaskaAK0.00%
CaliforniaCA0.00%
DelawareDE0.00%
FloridaFL0.00%
HawaiiHI0.00%
MississippiMS0.00%
NevadaNV0.00%
New HampshireNH0.00%
South DakotaSD0.00%
TennesseeTN0.00%
TexasTX0.00%
UtahUT0.00%
WashingtonWA0.00%
WyomingWY0.00%
North DakotaND2.90%
PennsylvaniaPA3.07%
IndianaIN3.23%
ColoradoCO4.00%
MissouriMO4.00%
OhioOH4.00%
OklahomaOK4.00%
VirginiaVA4.00%
MichiganMI4.25%
IllinoisIL4.95%
ArizonaAZ5.00%
IowaIA5.00%
KansasKS5.00%
KentuckyKY5.00%
LouisianaLA5.00%
MaineME5.00%
MassachusettsMA5.00%
NebraskaNE5.00%
North CarolinaNC5.50%
GeorgiaGA5.75%
Rhode IslandRI5.99%
New MexicoNM6.00%
VermontVT6.00%
West VirginiaWV6.50%
MontanaMT6.90%
IdahoID6.92%
ConnecticutCT6.99%
ArkansasAR7.00%
South CarolinaSC7.00%
MinnesotaMN7.25%
WisconsinWI7.65%
New JerseyNJ8.00%
OregonOR8.00%
MarylandMD8.75%
New YorkNY8.82%

FAQ

Do you pay taxes on $1,000 lottery winnings?

As mentioned before, lottery winnings are considered taxable income for state and federal tax purposes. As such, they are subject to tax and can impact your tax rate. You will most likely receive the amount in full. However, be aware that you might end up paying for it later.

How much tax do you pay on a $10,000 lottery ticket?

If you win the $10,000 prize, you need to pay the federal tax (25% of the whole amount). Second, you need to pay state tax and other local taxes. Depending on where you live, you may forgo this step. Finally, you might owe more at tax time if you fall into one of the higher tax brackets. To quickly estimate how much tax you have to pay for your winnings, you can use the lottery tax calculator.

Are lottery winnings taxed twice?

Sometimes, your winnings might be taxed twice or even thrice. It happens when you live in a state that imposes state tax on lottery winnings or move into one of the top federal tax rates. If you wish to avoid that, you might consider opting for annuity payments instead of choosing the cash option. Of course, if you choose to receive your winnings in annual payments, each payment will be taxed separately.

What are the taxes on 1 million dollars?

The federal tax on $1,000,000 is 25%. However, at tax time, you will probably find yourself in the highest tax bracket with a tax rate of 37%, meaning you will have to pay an additional sum of money. Furthermore, state tax and all the applicable local taxes will also eat into your winnings.

How is the lottery lump sum calculated?

The lottery lump sum is usually a percentage of the total revenue generated by the state or multi-state lottery from ticket sales. On the other hand, the lottery lump sum payout is calculated by detracting from the stated payout level federal tax, state tax, and local income tax withholding.

Do lottery winnings count as income?

Yes. Lottery winnings count toward your taxable income and can affect your state and federal tax rate. Depending on your other taxable income, they might even move you to a higher tax bracket.


Reference: https://taxfoundation.org/lottery-tax-withholding-2019/