If you're used to how lotteries work in Canada, the United States comes as a shock: lottery winnings here are fully taxable, and the tax is substantial. The IRS is blunt about it — "gambling winnings are fully taxable and you must report the income on your tax return." Between federal and state tax, a headline jackpot can lose roughly 40–45% before it's truly yours. Here's exactly how the layers stack up, and why the number withheld at claim time is never the number you actually owe.
The federal bite: 24% now, up to 37% later
Two federal numbers matter. When you claim a prize over $5,000, the payer must withhold 24% and report it on a Form W-2G. But lottery winnings are ordinary income, so they stack on top of everything else you earn and are taxed at your marginal bracket — and for a jackpot, that's the top federal rate of 37%.
For 2026, that 37% rate kicks in on taxable income above $640,600 (single) or $768,700 (married filing jointly). Any seven-figure prize blows past those thresholds instantly, so effectively the whole jackpot is taxed near 37% federally. On a Powerball or Mega Millions jackpot, that's the real federal rate to plan around — not the 24% you see withheld.
Withholding is not your final bill
This is the single most misunderstood part of a big win. The 24% withholding is a prepayment, not a settlement. Because the prize is taxed up to 37%, you owe the gap at filing.
The math on a $10 million cash prize:
- Withheld at claim: 24% = $2.4 million
- Actual federal tax: roughly 37% = ~$3.7 million
- Still owed at tax time: ~$1.3 million — before any state tax
Winners who spend as if the 24% was the whole tax bill get a nasty surprise the following April. State withholding works the same way: it's a prepayment against a possibly larger state liability.
State taxes: from zero to nearly 11%
Where you buy the ticket matters enormously, because state income tax on winnings ranges from nothing to almost 11%. The rate a state withholds often differs from the top marginal rate that ultimately applies, but here are the states that hit winners hardest, by top marginal rate for 2026:
| State | Top marginal rate | Note |
|---|---|---|
| New York | 10.9% | Withholds at the top rate on prizes over $5,000; + NYC 3.876% local |
| New Jersey | 10.75% | Withholds 5–8%; prizes ≤ $10,000 not taxed |
| District of Columbia | 10.75% | |
| Oregon | 9.9% | |
| Minnesota | 9.85% | |
| Massachusetts | 9.0% | Includes the millionaire surtax |
| Maryland | 5.75% (+ up to 3.2% county) | Withholds 8.95% for residents — higher than the marginal rate |
| Pennsylvania | 3.07% flat | Cash lottery prizes taxable since 2016 — a common myth says they aren't |
That last row matters: Pennsylvania is frequently — and wrongly — listed as exempting lottery winnings. It stopped doing so in 2016; only non-cash prizes remain exempt. New York, meanwhile, is the worst place to win: state 10.9% plus New York City's 3.876% pushes a city resident's combined marginal rate close to 15% on top of federal.
The no-tax states
At the other end, several states take nothing:
- No state income tax at all: Florida, Texas, Washington, Tennessee, South Dakota, Wyoming, and New Hampshire. Alaska and Nevada also have no income tax — and no state lottery.
- California is the useful special case: it has an income tax but statutorily exempts California Lottery winnings. The catch — a California resident who wins a lottery in another state still owes California tax on it.
Two footnotes: New Hampshire finished phasing out its interest-and-dividends tax in 2025, and Washington's capital-gains tax doesn't reach lottery prizes — so both are effectively no-tax for winners.
Winning out of state
Cross a state line to buy your ticket and you can face two states at once. The source state (where you bought it) taxes the prize and generally requires a nonresident return; your home state also taxes it, because states tax their residents' worldwide income. You're saved from true double taxation by a credit for taxes paid to the other state — if your home rate is higher you pay home state the difference; if it's lower, the credit covers it but you don't get the excess back. Some states set a lower withholding rate for nonresidents (Maryland withholds 8.95% for residents but 8% for nonresidents).
What this leaves you
Stack the layers and a jackpot winner in a high-tax state keeps a little over half. The two decisions that most affect the final number are covered in their own guides: whether to take the reduced cash lump sum or the annuity — see Lump Sum vs Annuity: The Real Math — and, if you're not a US resident, the different 30% regime that applies to you, covered in Can Non-US Citizens and Tourists Win the Lottery?.
None of this is tax advice, and a real jackpot needs a real accountant. But the shape is dependable: 24% withheld, up to 37% owed federally, and 0% to ~11% more to your state — with New York the costliest place to win and the no-income-tax states the cheapest.