Lottery taxes

This page explains how the federal rules work, from the IRS's own pages, as of the 2026 tax year. It isn't tax advice. State tax depends on where you live and sometimes on where the ticket was bought, and on anything large I'd sit down with a tax professional before I signed for the money.

What the IRS counts

The IRS puts it in one line on its gambling income page: "Gambling winnings are fully taxable." Lottery winnings are on its list by name, alongside raffles, sports betting, horse races and casinos, and a prize that isn't cash (a car, a trip) counts at its fair market value. You have to report all of it, including the $50 scratch-off that nobody sent you a form for.

I say that because I've seen plenty of people assume small wins are invisible. On a sports bet that assumption is common. On a lottery ticket it's just as wrong.

The W-2G and the 24 percent

The lottery reports bigger prizes on Form W-2G. Under the IRS instructions for the W-2G, a lottery files one when the prize is at least 300 times the ticket price and meets the reporting threshold, which for payments made in 2026 is $2,000.

Withholding is a separate line. When the winnings minus the price of the ticket come to more than $5,000, the lottery withholds 24 percent of the whole prize, less the ticket price, for federal tax before it pays you. If you don't give the lottery a correct taxpayer number, it can withhold 24 percent on smaller prizes that meet the reporting threshold, as backup withholding.

Take a $1,000,000 prize from a $2 ticket. The lottery sends $239,999.52 to the IRS (24 percent of $999,998) and you get the rest, with a W-2G showing both numbers.

Why 24 percent is short

The withholding is a flat rate, and the tax isn't. For 2026 the top federal bracket is 37 percent, on income over $640,600 for a single filer, according to the IRS summary of the 2026 rates. On every dollar a prize pushes you above that line, the lottery has withheld 24 cents and you owe 37. That's 13 cents a dollar still due, and on a jackpot that runs to real money.

The IRS is plain about what happens if you leave it: "If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty" (Publication 505). The winner who spends the check as if the 24 percent settled it is the one who gets a bill in April he can't pay. I'd put the difference aside the day the money lands.

Losses, from 2026 on

You can deduct gambling losses, including losing tickets, only if you itemize, and never more than you won. From 2026 there's a new limit on top of that: Publication 505 says the deduction is the lesser of 90 percent of your losses or your winnings.

So a player who wins $10,000 in a year and can show $10,000 of losing tickets can deduct only $9,000, and pays tax on $1,000 he never came out ahead on. The IRS also wants records: a diary of what you won and lost, with the tickets and statements to back it. Most lottery players keep none. If you play enough for this to matter, start the diary in January.

Annuities, pools and non-residents

An annuity is taxed as it's paid. If a winner takes the yearly payments, the lottery files a W-2G each year for that year's payment, federal withholding applies to the payments, and each year's payment is income in that year. The choice itself is on the annuity or lump sum page.

When a group wins, the IRS has a form for it. Form 5754 is used when the person collecting the prize isn't the only winner, and it lists everyone who shares it, so that the lottery can issue a W-2G to each person for his share. The lottery decides whether the reporting and withholding thresholds apply on the whole prize first, before it splits it. The lottery syndicates page covers how to set a pool up so that part goes smoothly.

Winnings paid to someone who isn't a U.S. resident are generally withheld at 30 percent and reported on different forms, and, Canadians apart, they generally can't deduct losses. A foreign player who wins here should get advice in both countries.

Your state

Whether your state taxes a lottery prize, at what rate, and whether it withholds at the counter all depend on the state. I won't give rates here because they differ and they change, so check with your state's revenue department or lottery before you claim. If you bought the ticket in a state you don't live in, ask about both.

Before you claim

A big claim is a decision about money, not a celebration, and the order I'd do things in is simple. Sign the ticket and keep it safe. Talk to a tax professional before you choose cash or annuity, because the tax bill is part of the comparison. Set aside the gap between 24 percent and your real rate. And keep the W-2G with your return.

For what you actually take home on the big games, the Powerball and Mega Millions pages show the gap between the advertised jackpot and the cash. If you are playing more than you meant to because of a big jackpot, the responsible gambling page is a better place to start than this one.