Tax Implications of Lottery Revenue

A lottery is a form of gambling in which numbers are drawn to determine ownership or other rights. It is a popular way to raise money for public and private projects, including schools, colleges, and roads. It is also used to award prizes to athletes and celebrities.

Avoid picking number sequences that are significant to you, such as birthdays. These are likely to be picked by other people and if you win, you’ll have to split the prize with them.


The drawing of lots to determine ownership or other rights is recorded in ancient documents. This practice is also used to fund public works projects, and it became popular in Europe during colonial times. In America, lottery revenue is a significant source of state funding.

The first modern lotteries appeared in the Low Countries in the fifteenth century, with towns raising money for town fortifications and to help the poor. Later, they helped pay for churches and canals. The colleges at Yale, Princeton, and Harvard were financed partly by lotteries, and the Continental Congress used one to raise funds for the Revolutionary War.

Lottery supporters discarded old ethical objections and promoted them as a way to finance government services that voters wanted anyway. They argued that, as long as the lottery profits were not diverted to private gain, the game was morally justifiable.


A lottery is a procedure for awarding money or goods by random selection. Unlike raffles, tombolas, and sweepstakes, lotteries require payment in exchange for the chance of winning. This type of gambling is regulated by law, and is only permitted for public benefit or recreation. The prizes in a lottery are not to be sold for commercial gain.

Modern lotteries may use any of a variety of formats. Some use fixed prize pools. Others offer a variable percentage of total receipts. In both cases, there is some risk to the lottery organizer if there are insufficient tickets sold. For this reason, a good number of games are designed to avoid these risks. For example, a game like Genoese requires players to select six digits, which have equal winning chances, and Keno games rely on pseudo-random selection of numbers (see The UK National Lottery – a guide for beginners in issue 29 of Plus). This makes these games relatively safe.


A lottery is a game of chance in which participants pay for tickets and win prizes based on the number of numbers they match. Some prizes are monetary, while others are goods or services. Lottery games are regulated by state laws, and some are televised. In the United States, winnings are paid out either as a lump sum or an annuity payment. Each option has different tax implications. Therefore, lottery winners should consult with an attorney, CPA or financial planner before deciding how to receive their prize.

Winners can claim their prizes at lottery customer service centers and prize claim locations, or by mail. Unclaimed prizes benefit two Arizona charities: the Court Appointed Special Advocates program through the Supreme Court and the Tribal College Dual Enrollment Fund administered by the Arizona Department of Education.


Lottery winnings are taxed like any other income. In the US, federal law taxes prizes from games of chance like lottery, sweepstakes and raffles as ordinary income. State taxes may also apply, but details vary by state.

Winners can choose to receive their prize in annual or monthly payments. The choice depends on personal circumstances, and a winner should consult with an accountant or financial advisor to determine the best option for their situation.

When a jackpot is won, the IRS withholds 24% of the prize amount for federal taxes. The remaining funds are subject to ordinary taxable rates, which could push the winner into a higher tax bracket. If a lump sum is chosen, the top marginal rate is 37%. For annuity winners, this rate is lower.


Retailers that sell lottery tickets are able to earn commissions on all tickets sold and redeemed. In addition, they are able to earn bonuses when their customers win the lottery. These incentives are a great way to drive traffic to stores and increase sales of other products. Retailers can sign up for the lottery program by contacting their Lottery account representative.

The upfront costs of becoming a lottery retailer are minimal. Retailers pay a one-time $25 licensing fee, and there is a weekly communication charge of $12. In addition, retailers must have a surety bond or liability deposit account with the state. They also must have an operational store or business. If they do not, they cannot sell lottery products. In order to make money selling lottery tickets, retailers should offer a variety of different types of games.