When you see a jackpot advertised at $500 million, that’s not what you’ll take home. Not even close. Between federal taxes, state taxes, and the payout option you choose, the number that hits your bank account could be less than half.
Understanding how lottery taxes work BEFORE you win is crucial. The decisions you make — and the state you live in — can mean a difference of millions.
Here’s everything you need to know about lottery taxes in 2025/2026.
This isn’t something most people think about when buying a ticket. But it should be. The tax implications are significant and can catch winners off guard.
Let’s break it down step by step.
💵 Federal Taxes: The IRS Takes Its Cut First
The moment you claim a prize over $5,000, the IRS is involved. Here’s how it works:
Here’s what that means in practice: when you win, 24% is automatically withheld. But if your total income (including the jackpot) pushes you into the top tax bracket, you’ll owe an additional 13% when you file your return.
For a large jackpot, you’re almost certainly in the 37% bracket. That’s the reality every major winner faces.
📊 2026 Federal Tax Brackets
Your lottery winnings are taxed as ordinary income. Here are the current federal brackets:
| Tax Rate | Single Filers | Married Filing Jointly |
|---|---|---|
| 10% | Up to $11,925 | Up to $23,850 |
| 12% | $11,926 – $48,475 | $23,851 – $96,950 |
| 22% | $48,476 – $103,350 | $96,951 – $206,700 |
| 24% | $103,351 – $197,300 | $206,701 – $394,600 |
| 32% | $197,301 – $250,525 | $394,601 – $501,050 |
| 35% | $250,526 – $626,350 | $501,051 – $751,600 |
| 37% | Over $626,350 | Over $751,600 |
Any jackpot worth talking about will push you into the 37% bracket. Even a $1 million prize (after the lump sum reduction) exceeds the threshold.
🗺️ State Taxes: Where You Live Matters
After the federal government takes its share, your state may want a piece too. The differences are dramatic.
California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming
• New York: 10.9% (+ 3.876% for NYC residents = 14.78% total)
• New Jersey: 10.75%
• District of Columbia: 10.75%
• Oregon: 9.9%
• Minnesota: 9.85%
• Maryland: 8.95%
📋 State Tax Rates on Lottery Winnings (2026)
| State | Tax Rate | State | Tax Rate |
|---|---|---|---|
| California | 0% | New York | 10.9% |
| Florida | 0% | New Jersey | 10.75% |
| Texas | 0% | Oregon | 9.9% |
| Washington | 0% | Minnesota | 9.85% |
| Tennessee | 0% | Maryland | 8.95% |
| Wyoming | 0% | Wisconsin | 7.65% |
| South Dakota | 0% | Iowa | 6% |
| New Hampshire | 0% | Illinois | 4.95% |
| North Dakota | 2.9% | Ohio | 3.99% |
| Pennsylvania | 3.07% | Indiana | 3.15% |
Note: Some cities impose additional local taxes. New York City residents, for example, pay an extra 3.876% on top of the state rate.
💸 Real Impact: What This Means for a Big Jackpot
Let’s look at a hypothetical $500 million jackpot (cash value approximately $250 million) to see how location affects your take-home:
| Location | Federal Tax | State Tax | Approx. Take-Home |
|---|---|---|---|
| Florida / Texas | ~$92.5M | $0 | ~$157.5M |
| Illinois | ~$92.5M | ~$12.4M | ~$145.1M |
| New York City | ~$92.5M | ~$36.9M | ~$120.6M |
⚖️ Lump Sum vs. Annuity: The Big Decision
When you win, you’ll have to choose between two payout options. This decision has major tax implications.
- Get all your money immediately
- Typically 50-60% of advertised jackpot
- All taxes hit in one year
- You control investment decisions
- Risk: easier to spend quickly
- Receive full advertised amount
- 30 annual payments (increasing 5%/year)
- Taxes spread over decades
- Built-in spending discipline
- Risk: inflation reduces future value
Most financial experts note that the lump sum, wisely invested, could potentially grow to exceed the annuity value. However, the annuity provides built-in protection against overspending — which is how many lottery winners end up broke.
📝 Strategies Financial Advisors Recommend
If you ever find yourself holding a winning ticket, tax professionals typically suggest these approaches:
📌 Consult a tax attorney and financial advisor immediately
📌 Understand your state’s tax implications
📌 Consider establishing a trust for privacy and protection
Tax Reduction Strategies:
📌 Charitable donations can provide deductions
📌 Gifting up to $19,000/year per person avoids gift tax
📌 Some winners relocate to tax-free states before claiming
📌 Annuity option may keep you in lower brackets longer
📋 Key Takeaways
✅ Federal taxes take 24% immediately, up to 37% total
✅ State taxes range from 0% to 14.78% (NYC)
✅ Where you live can mean millions in tax differences
✅ Lump sum vs. annuity affects your tax bracket
✅ Always consult professionals before claiming a large prize
The jackpot number on the screen is exciting. But the number that matters is what you actually keep. Understanding taxes ahead of time helps you make better decisions — and avoid surprises — if you ever get lucky.
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📌 Important Disclaimer
This content is for educational and informational purposes only. It is not tax, legal, or financial advice. Tax laws change frequently and individual situations vary. Always consult qualified tax professionals, attorneys, and financial advisors for guidance specific to your circumstances.
Sources: IRS 2026 Tax Brackets, Tax Foundation, Kiplinger, SmartAsset, TurboTax, H&R Block, state lottery commissions. Tax rates current as of January 2026.
Andrew Brooks is a qualified writer and researcher with experience producing clear, trustworthy content on topics such as personal finance, lifestyle optimization, consumer insights, productivity, and informed decision-making. With an approachable yet professional tone, he focuses on turning complex information into practical, easy-to-understand guidance that helps readers make smarter choices with confidence.