Tonight, the numbers for the near-record Mega Millions jackpot will be drawn. At $1.15 billion, it's the fifth-largest prize since the game's inception and the largest prize ever offered in the month of December.
It's undoubtedly a life-changing sum. Depending on your state, you might keep a bit more of your winnings because some states don’t tax lottery prizes. This means you could save an extra 3% to 10%.
Federal Taxes Always Taken Out of Lottery Winnings
If you win the lottery, you do have to pay federal taxes.
Initially, they withhold 24% of your winnings, but if you hit tonight’s Mega Millions jackpot, you’ll likely need to pay up to 37% when you file your 2024 taxes. This is because a billion-dollar win places you in the highest tax bracket.
What Is Considered a Lottery or Gambling Prize?
Lottery and gambling winnings can be cash or the market value of prizes like cars, trips, and merchandise.
In addition to winning a lottery drawing, you can earn gambling income from things like:
- Winning sports events or pools, like the Super Bowl or March Madness
- Playing bingo
- Hitting a jackpot on slot machines
- Competing on game shows
- Winning poker games
- Winning raffles
- Winning on scratch-off cards
- Online casino winnings
- Placing bets on races, such as car, horse, or dog races
Lottery winners can choose between receiving their winnings as a lump sum or through annuity payments distributed over several years.
Opting for a lump sum means taxes are deducted from the total amount upfront, leaving winners with the after-tax balance to save, invest, or share as they see fit.
Alternatively, selecting annuity payments ensures a steady income over a designated period, with taxes assessed annually on the received amount.
How Much Do States Typically Tax Lottery Winnings?
Like the IRS, most U.S. states consider lottery and gambling winnings as taxable income, meaning the total tax you owe depends on your state of residence.
State taxes on lottery winnings vary, typically ranging from 3% to 6%. New York imposes the highest rate at 10.9%, while North Dakota has the lowest at 2.9%.
Other states with relatively low tax rates on lottery winnings include:
- Pennsylvania (3.07%)
- Indiana (3.15%)
- Ohio (3.99%)
Which States Don’t Tax Lottery Winnings?
Here are the 8 states that do not subject lottery winnings to state taxes. They will only remove the federally required 24%.
California
The Golden State may go easy on lottery winners, but it has developed a reputation for being a high-tax state. California also has one of the highest sales tax rates in the U.S.
Florida
Florida won’t tax your lottery winnings and it is also one of nine states that don't have a personal income tax.
New Hampshire
In New Hampshire, you won't pay state taxes on your lottery winnings because the state doesn't charge income or sales tax. However, New Hampshire does have relatively high property taxes compared to other states.
South Dakota
South Dakota is another state with no personal income tax, and it won't deduct from your Mega Millions or other lottery winnings.
Tennessee
Despite having one of the highest sales tax rates in the U.S., Tennessee boasts relatively low property taxes, and does not tax lottery winnings because it does not charge income tax.
Texas
Texas state tax has its pros and cons. Lottery winnings aren’t taxed, but the statewide sales tax rate stands at 6.25%, with localities having the option to add up to an additional 2%. While property taxes are relatively high in Texas, recent reductions have benefited many residents.
Washington
The Evergreen State does not impose a personal income tax or tax lottery winnings at the state level.
Wyoming
According to The Tax Foundation, Wyoming has a relatively low average combined state and local sales tax rate, and its median property tax rate is also low compared to other states.
Based on calculations by usamega.com, the estimated cash lump sum will be in the area of $325,000,000 or an annuity totaling almost $726,000,000 over 30 years, if someone hits in one of the 8 states listed above.
Not Every State Has Mega Millions
While some people will avoid state taxes if they hit the jackpot, others won’t even get the chance to play.
Mega Millions is played in 45 states, Washington, D.C., and the U.S. Virgin Islands. There are five states where the game is not played. They include:
- Alabama
- Alaska
- Hawaii
- Nevada
- Utah
If you live in a state that offers Mega Millions, ask an official lottery retailer about the exact time you need to buy your ticket. The cutoff time varies by state. In some places, ticket sales stop an hour before the drawing, while others allow you to buy tickets until about 15 minutes before it starts.
Or you can save yourself some time by purchasing your tickets through an online casino or sportsbook (like DraftKings).
Someone could have the Happiest New Year ever. Good luck. And always remember to gamble responsibly.
