How Some States Treat Lottery Winnings

States comply with IRS rules when it comes to lottery winnings.

States comply with IRS rules when it comes to lottery winnings.

Perhaps as long as you can remember, you’ve dreamt of what you’d do if you won the lottery. So, what happens if you beat the odds and your lottery ship comes in? At the federal level, ordinary income tax rates apply and expect to have the amount owed automatically withheld if you won more than $5,000. If you received a nice but not extraordinary windfall, that automatic withholding is 25 percent. If you really won the jackpot, as in Powerball, you’ll pay 37 percent. Depending on where you live or bought the ticket, state lottery taxes come into play, although the lottery tax rates don’t necessarily correspond to state income tax rates.

States That Don’t Have Lotteries

Just five states don’t have their own lotteries, the type the average resident is most likely to play. These states are:

  • Alabama
  • Alaska
  • Mississippi
  • Nevada – even though it’s the gaming capital of the country.
  • Utah

States Without Income Taxes

Win the lottery in a state without an income tax, and you’ve hit a double jackpot. The following states have no income tax and therefore don’t tax lottery winnings:

  • Florida
  • Hawaii
  • New Hampshire
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

California and Delaware

What do giant California and little Delaware, on opposite coasts, have in common? Although they have state income taxes, neither taxes state lottery winnings.

Arizona and Maryland

Arizona and Maryland tax resident lottery winners at 5 percent and 8.75 percent, respectively, but an out-of-state resident winning state lottery money will have a higher percentage withheld.

New York, New York

If you win the lottery in New York, you’ll pay more than anywhere – where else but in New York, New York? New York state’s taxes on lottery winnings is 8.82 percent, but if you live in Manhattan or nearby Yonkers, expect additional local taxes to apply.

Where Your State Ranks

Here’s the bite you can expect out of your lottery winning by state taxes for other states, as per The Tax Foundation:

  • Arkansas – 7 percent
  • Colorado – 4 percent
  • Connecticut – 6.99 percent
  • Georgia – 6 percent
  • Idaho – 7.4 percent
  • Illinois – 4.95 percent
  • Indiana – 3.40 percent
  • Iowa – 5 percent
  • Kansas – 5 percent
  • Kentucky – 6 percent
  • Louisiana – 5 percent
  • Maine – 5 percent
  • Massachusetts – 5 percent
  • Michigan – 7.25 percent
  • Missouri – 4 percent
  • Montana- 6.9 percent
  • Nebraska – 5 percent
  • New Jersey – 8 percent
  • New Mexico – 6 percent
  • North Carolina – 5.499 percent
  • North Dakota – 2.9 percent
  • Oklahoma – 4 percent
  • Ohio – 4 percent
  • Oregon – 8 percent
  • Pennsylvania – 3.07 percent
  • Rhode Island – 5.99 percent
  • South Carolina – 7 percent
  • Vermont – 6 percent
  • Virginia – 4 percent
  • West Virginia – 6.5 percent
  • Wisconsin – 7.65 percent

 

About the Author

Jane Meggitt has been a writer for more than 20 years. In addition to reporting for a major newspaper chain, she has been published in "Horse News," "Suburban Classic," "Hoof Beats," "Equine Journal" and other publications. She has a Bachelor of Arts in English from New York University and an Associate of Arts from the American Academy of Dramatics Arts, New York City.

Photo Credits

  • Brand X Pictures/Brand X Pictures/Getty Images