Lottery Taxes

Lottery winners should understand that huge prizes come with big financial responsibilities. The IRS will take a sizable chunk of any winnings, and state taxes are also a consideration.

The lottery is a game that most people play at least once a year. The players are disproportionately low-income, less educated, and nonwhite.


The lottery originated as a way to raise funds for government projects. Augustus Caesar is said to have been the first person to organize a lottery in Rome, but the modern lottery was likely created in 1445 in the Low Countries—modern-day Belgium, the Netherlands, and Luxembourg. These early lotteries were often tied to wars and other military ventures, but eventually became popular for helping the poor and funding public works projects.

Today, state-run lotteries are commonplace throughout the United States. In fact, many states’ constitutions allow for the establishment of a lottery to supplement revenue for education and other programs. Lotteries are also widely used to distribute information, such as Amber Alert messages.

While the popularity of the lottery has increased, the concept is still a form of gambling, and some people oppose it. For example, the National Gambling Impact Study Commission’s 1999 final report criticized the lottery industry for pushing luck and instant gratification as alternatives to hard work, prudent investment, and savings.


Lotteries raise money for all sorts of public and private projects. They are popular among the wealthy, and their prizes can be substantial, often including cash and goods. They also promote civic responsibility and provide a relatively painless form of taxation.

A prize may be a fixed amount of money, or it could be a percentage of total receipts. Alternatively, the prize can be determined by a random number generator. However, this is an unreliable method. Hence, the majority of modern games use a pseudo-random number generator.

Lottery designers must make sure that players’ choices do not skew the results. In a game in which players select six numbers from a list of 49, for example, it is possible to design the numbers such that each has an equal chance of being selected. The UK National Lottery uses this format, known as the Genoese Format (see The UK National Lottery – a guide for beginners in issue 29 of Plus).


There are a variety of prizes available through lottery, from cash to cars and vacations. The amount of the prize depends on how much money you spend on tickets and the number of winning combinations you have. It’s important to remember that winning the lottery is a game of chance, and you may not win every time you play.

The first recorded lotteries were held in the Low Countries in the 15th century to raise funds for town fortifications and to help the poor. Benjamin Franklin organized a lottery to raise money for cannons, and the resulting tickets became collector’s items.

If you win the lottery, you can choose to receive your prize as a lump sum or in an annuity payment. Each choice has different financial implications, so it’s a good idea to consult a tax attorney, CPA, or certified financial planner before making your decision. In addition, you should consider protecting your ticket from loss or theft until you can make a claim.


Lottery taxes are a major part of the budgets of many state and local governments. However, the $70 billion Americans spend on lottery tickets each year represents money that could be put toward savings, paying off credit card debt, or investing for retirement. It also reduces the amount of tax revenue that can be collected, and this is a source of concern for some people.

In the US, lottery winnings are considered ordinary taxable income and federal tax withholding is 24%. This can leave a gap between the required withholding and the actual amount you will owe, depending on your tax bracket. You can use a lottery calculator to determine your final payout after the taxes are deducted.

In addition to the federal tax withholding, some states also impose taxes on lottery winnings. For example, New York state taxes winnings up to 13%. In addition, the city of New York levys a hefty 1.477%. Other states do not tax lottery winnings at all.