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Before you receive any lottery winnings over $5,000, the IRS will claim 24% upfront. Depending on where you live, state and local taxes could take up to an additional 15%. However, since the highest federal tax rate is 37%, you may still owe more when it’s time to file your taxes. To navigate these complexities, a simple first step for any lottery winner is to consult a financial advisor who can provide guidance on tax planning and investment strategies.
How Are Lottery Winnings Taxed?
The IRS treats net lottery winnings as ordinary taxable income. After subtracting the cost of your ticket, you’ll owe federal income tax on the remaining amount. The exact amount depends on your tax bracket, which is determined by your total income, including lottery winnings. Because of this, the IRS withholds 24% upfront, and you’ll pay any remaining balance when you file your return in April.
Here’s a breakdown of the federal income tax brackets for tax year 2025, which you’ll file in 2026:
2025 Federal Income Tax Brackets
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 – $11,925 | $0 – $23,850 | $0 – $11,925 | $0 – $17,000 |
| 12% | $11,926 – $48,475 | $23,851 – $96,950 | $11,926 – $48,475 | $17,001 – $64,850 |
| 22% | $48,476 – $103,350 | $96,951 – $206,700 | $48,476 – $103,350 | $64,851 – $103,350 |
| 24% | $103,351 – $197,300 | $206,701 – $394,600 | $103,351 – $197,300 | $103,351 – $197,300 |
| 32% | $197,301 – $250,525 | $394,601 – $501,050 | $197,301 – $250,525 | $197,301 – $250,525 |
| 35% | $250,526 – $626,350 | $501,051 – $751,600 | $250,526 – $626,350 | $250,526 – $626,350 |
| 37% | $626,351+ | $626,351+ | $578,126+ | $626,351+ |
For comparison, here are the tax brackets for tax year 2024:
Federal Income Tax Bracket for 2024
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 – $11,600 | $0 – $23,200 | $0 – $11,600 | $0 – $16,550 |
| 12% | $11,600 – $47,150 | $23,200 – $94,300 | $11,600 – $47,150 | $16,550 – $63,100 |
| 22% | $47,150 – $100,525 | $94,300 – $201,050 | $47,150 – $100,525 | $63,100 – $100,500 |
| 24% | $100,525 – $191,950 | $201,050 – $383,900 | $100,525 – $191,950 | $100,500 – $191,950 |
| 32% | $191,950 – $243,725 | $383,900 – $487,450 | $191,950 – $243,725 | $191,950 – $243,700 |
| 35% | $243,725 – $609,350 | $487,450 – $731,200 | $231,251 – $365,600 | $243,700 – $609,350 |
| 37% | $609,350+ | $731,200+ | $365,600+ | $609,350+ |
Example of How Much the IRS Takes from Lottery Winnings
Say you’re a single filer making $45,000 a year during the 2025 tax year and you won $100,000 in the lottery. That raises your total ordinary taxable income to $145,000, with $24,000 withheld from your winnings for federal taxes. As you can see from the 2025 rate table above, your winning lottery ticket bumped you up from the 12% marginal tax rate to the 24% rate (assuming you are a single filer and, for simplicity’s sake here, had no deductions).
But that doesn’t mean you pay a 24% tax on the entire $145,000. You pay that rate on only the portion of your income that surpasses $103,350. In this case, that’s $41,650. You’d owe $17,651 on the first $103,350 plus 24% of that $41,650 ($9,996). That adds up to a total bill of $27,647.
Of course, if you were already in the 37% tax bracket when you won the lottery, you would have to pay the top marginal rate on all your prize money. But these rules apply only to federal income tax. Your city and state may want a cut, too.
How Are Lottery Winnings Taxed By at the State Level?
Come tax time, some states will also take a piece of your lottery winnings. How large a piece depends on where you live. The Big Apple takes the biggest bite, which can be up to 15%. That’s because New York State’s income tax can be as high as 10.9%, and New York City levies one up to 3.876%. Yonkers residents pay just under 2% in local city tax. If you live almost anywhere else in New York State, though, you won’t owe as much.
Of states that have an income tax, rates can span from about 2.9% to 8.82%. Nine states, however, don’t levy a state income tax. They are:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
You should also note that California has state income tax but does not tax lottery winnings.
If you live in one state and buy a ticket in another, typically the state where the ticket was bought (and the prize paid) will withhold its taxes at its rate. You will have to sort out how much you owe to your state at tax time (you will receive a credit for the amount already withheld–and the states will sort out who gets what between them).
These examples reflect possible outcomes from taking your winnings as a lump sum. In most cases, however, your options include taking your earnings as a series of annual payments.
Should I Take a Lump Sum or Annuity Lottery Payments?
The answer depends on your preferences and the specifics of your situation. Many financial advisors recommend you take a lump sum because it allows you to receive a larger return if you invest it in growth-oriented assets such as stocks. You may also want all the money to be able to buy a big-ticket item like a car, house or island if your winnings are large enough.
Winners of small jackpots, though, may want to receive their winnings in annual payments, especially if it means they’ll owe less in taxes. Or they may prefer the steady stream of cash to ensure they don’t make the common mistake of blowing through all or most of their winnings. If you do take the annual payments, you should still work with an advisor on how to best use that money stream.
For example, you’d probably want to prioritize contributing to your retirement savings account. If you don’t have one, winning the lottery may be a golden opportunity to open an individual retirement account (IRA) or Roth IRA as long as you also have earned income.
In any event, you’d want to stash some cash for emergencies, taxes and other expenses down the road. Below, we provide links to reports on the best savings accounts, certificates of deposit (CDs) and investing vehicles:
How to Minimize Your Tax Burden on Lottery Winnings
Taxes on lottery winnings are unavoidable, but there are steps you can take to minimize the hit. As mentioned earlier, if your award is small enough, taking it in installments over 30 years could lower your tax liability by keeping you in a lower bracket. Also, you could donate to your favorite nonprofit organizations. This move allows you to take advantage of certain itemized deductions, which, depending on your situation, could bring you into a lower tax bracket.
Additionally, if you are sharing your good fortune with family and friends, you’ll want to avoid paying a gift tax. You can gift up to $19,000 in 2025 per person (up from $18,000 in 2024) without owing a gift tax. If you go over the limit, you still may not owe gift and estate taxes.
The Tax Cuts and Jobs Act (TCJA) raised the lifetime gift and estate tax exclusion in 2025 to $13.99 million for single filers (President Trump’s One Big Beautiful Bill Act extended the TCJA exemption to $15 million in 2026). Any gifts over $19,000 per year per individual (as of 2025) will count against the lifetime exemption.
If you anticipate approaching the gift tax limit, keep in mind that direct payments to colleges or medical providers don’t count as gifts. The annual exclusion allows you to gift up to $19,000 per recipient without using your lifetime exemption. There’s no limit on the number of people you can gift to. If you’re married, you and your spouse can each gift $19,000 to the same person — totaling $38,000 gift-tax-free. If the recipient is married, you can do the same for their spouse, allowing a couple to give $76,000 to another couple annually without triggering gift tax.
What to Do After Winning the Lottery
Winning the lottery, especially if it’s a large sum, can be a life-altering event for some. What you do next can put you on the path to financial wellness for the rest of your life. Or it can put you on the roller coaster ride of your life that leaves you broke.
Perhaps the best thing to do with your winnings at first is nothing. Take time to figure out how this windfall affects your financial situation. Calculate your tax liability with an accountant and earmark at least what it will take to cover the tax bill. Then comes the fun part: creating a blueprint of how you’re going to manage the rest of the cash.
But don’t go it alone. Work with a qualified financial advisor who can help you preserve and grow the money. After all, no matter how large your winnings are, they aren’t infinite. So making smart investments is key to your having enough money for the rest of your life.
Bottom Line
Lottery winnings can come with major tax obligations, especially when combined with other income. The IRS takes 24% off the top for prizes over $5,000, but your final bill could be much higher. You may also owe state and local taxes. To avoid surprises, plan ahead. A financial advisor can help you calculate your full tax burden, choose between lump sum and annuity options, and create a strategy to manage and protect your winnings over time.
Tax Planning Tips
- Many financial advisors are knowledgeable about taxes and can help you understand how they can impact your finances. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to see whether you’ll get a tax refund or have to pay a tax bill, SmartAsset’s tax return calculator can help you plan.
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