There is no set tax rate used throughout the United States for lottery winnings. Instead, the tax rates vary from state to state. Some states don’t impose tax on lottery prizes at all.
It’s important to understand the rate at which your winnings will be taxed as this can have a significant impact on the final amount received, and any plans you may have for the money.
What states tax lottery winnings?
As detailed below in our State Lottery Tax Rate Table there are 36 states imposing taxation on lottery prizes, with 8 states not imposing any tax on winnings.
| State | Lottery Tax Rate |
|---|---|
| New York (NY) | 8.82% |
| Maryland (MD) | 8.75% |
| New Jersey (NJ) | 8% |
| Oregon (OR) | 8% |
| Wisconsin (WI) | 7.65% |
| Minnesota (MN) | 7.25% |
| Arkansas (AR) | 7% |
| South Carolina (SC) | 7% |
| Connecticut (CT) | 6.99% |
| Idaho (ID) | 6.93% |
| Montana (MT) | 6.9% |
| West Virginia (WV) | 6.5% |
| New Hampshire (NH) | 6% |
| New Mexico (NM) | 6% |
| Vermont (VT) | 6% |
| Rhode Island (RI) | 5.99% |
| Georgia (GA) | 5.75% |
| North Carolina (NC) | 5.45% |
| Arizona (AZ) | 5% |
| Iowa (IA) | 5% |
| Kansas (KS) | 5% |
| Kentucky (KY) | 5% |
| Louisiana (LA) | 5% |
| Maine (ME) | 5% |
| Massachusetts (MA) | 5% |
| Nebraska (NE) | 5% |
| Illinois (IL) | 4.95% |
| Michigan (MI) | 4.25% |
| Colorado (CO) | 4% |
| Missouri (MO) | 4% |
| Ohio (OH) | 4% |
| Oklahoma (OK) | 4% |
| Virginia (VA) | 4% |
| Indiana (IN) | 3.23% |
| Pennsylvania (PA) | 3.07% |
| North Dakota (ND) | 2.9% |
| California (CA) | 0% |
| Delaware (DE) | 0% |
| Florida (FL) | 0% |
| South Dakota (SD) | 0% |
| Tennessee (TN) | 0% |
| Texas (TX) | 0% |
| Washington (WA) | 0% |
| Wyoming (WY) | 0% |
What influences tax rates?
The rate at which a lottery prize is taxed is influenced by a number of factors such as:
- Fiscal Considerations: If a state is facing budget deficits or financial challenges taxing lottery winnings can provide a new source of revenue to fund public programs and services.
- Budgetary Needs: States often use lottery revenues to fund specific programs such as education, infrastructure or healthcare.
- Political Dynamics: Some states with a more conservative or anti-tax stance may choose not to tax lottery winnings as part of their overall tax policy.
- Public Opinion: If there is strong public support for taxing lottery winnings and using the funds for public benefit, lawmakers might be more inclined to implement such a tax.
- Competitiveness: If neighboring states have similar lotteries and tax policies a state might decide to tax winnings to remain competitive while still attracting players from other states.
- Social and Economic Goals: For example some states might tax high winnings at a higher rate to address income inequality or fund social welfare programs.
- Administrative Feasibility: States might consider the ease of collecting the tax and the potential costs of administration.
- Legal and Constitutional Factors: Some states might have restrictions on certain types of taxes or require specific procedures for enacting new taxes.
- Historical Precedence: If a state has a history of not taxing gambling or lottery winnings it might be more resistant to change.
- External Influences: States might consider how federal taxes impact residents’ overall tax burden and adjust their own policies accordingly.
In many cases it’s a combination of these factors that shapes a state’s decision on whether to tax lottery winnings and at what rate.
What is a W2-G Form?
A W-2G form is a tax form used in the United States to report certain types of income, specifically gambling winnings. The “W” stands for “wage” and the “2G” indicates the specific type of form within the W series.
Gambling places like casinos and lotteries have to give winners a form called W-2G if they win a certain amount of money or prizes. This form is sent to both the winner and the W-2G formIRS to show how much money was won.
The W-2G form has your name, address and Social Security number. It also shows details about the gambling you did, when and where you won, how much you won and if any federal or state tax was taken from your winnings when you got them.
If you get a W-2G form make sure to include your gambling winnings on your federal tax return. The amount you won decides if you need to pay taxes on it.
Do all winnings need a W2-G Form?
Not every amount won needs a W-2G form. If you win from smaller bets or office pools you still might owe taxes but the form might not be necessary. Make sure you know your reporting duties and talk to a tax expert if you’re unsure about reporting gambling earnings on your tax return.
