Tax Strategies & Credits

A Guide to Which U.S. States Don't Tax Lottery Winnings

A Guide to Which U.S. States Don't Tax Lottery Winnings

With tonight's (August 4!) Mega Millions drawing set at $1.25 billion, many hopeful would-be lottery winners are crossing their fingers from coast to coast today.

At the federal level, lottery taxes are automatically set at 25%, so one-quarter of the winnings will go to the IRS without question. In addition, lottery winnings are taxed the same as wages or salary on both federal and state levels. Federal tax brackets still apply, so portions of the winnings will be taxed at different rates, and could be as high as 37%. State and local tax rates vary from place to place.

For residents of eight states, however, lottery winnings are not taxed. If you live in one of these locations, you'll get to keep more of your money -- whether you hit on a scratch-off ticket or you're the incredibly lucky winner tonight. 

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Credit: Jodi Jacobson

States That Do Not Tax Lottery Winnings

The eight states that don't currently tax lottery winnings are:

1. California - Although The Golden State does not impose a tax on lottery winnings, it does have some of the highest state income taxes in the nation.

2. Florida - Florida does not have a personal income tax or a lottery tax, making it a popular home base for high-income earners. 

3. New Hampshire - New Hampshire has also nixed both a personal income tax and a lottery tax. However, the state's property taxes are higher than the national average.

4. South Dakota - South Dakota, again, is state income tax-free and lottery tax-free. South Dakotans do, though, have to pay sales tax on groceries -- a measure that has garnered controversy.

5. Tennessee - Tennessee, too, lacks a state income tax and a lottery tax. Tennessee also regularly gives residents tax holidays, including a moratorium on grocery taxes last year and again this year.

6. Texas - Texas does not tax lottery winnings at the state level. This is great news for the player who purchased a winning Mega Millions ticket in Burnet, Texas just yesterday!

7. Washington - Washington State doesn't impose a state income tax or a lottery tax. Residents, though, have faced the highest gas prices in the nation this summer.

8. Wyoming - Wyoming is among the nation's best states from a tax standpoint. Residents don't pay a personal or corporate income tax, a lottery tax, or an inheritance tax. This is one reason that Jackson Hole has become something of a haven for wealthy residents.

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Credit: Khosrow Rajab Kordi/EyeEm

The American Institute of CPAs (AICPA) previously weighed in and said one of the best ways for lottery winners -- or any high-income earners -- to reduce their annual tax bill is to donate a large amount of money to charity. 

It is also, of course, wise to connect with a tax professional who can assist you with all of your tax planning needs. 

Have you bought a Mega Millions ticket yet?

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Feature Image Credit: Martinelli/Getty Images

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Rebekah Barton

Rebekah Barton

Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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