A Lottery Winner’s Basic Guide to State Income Taxes

State Tax
Monday February 4, 2019 05:18 am

The Lottery Lab Staff

Powerball is the favorite multi-state lotto game of lottery players across the US. Wednesday and Saturday are known “Powerball Day” for enthusiastic players because drawings for Powerball take place twice a week on every Wednesday and Saturday. The jackpot for Powerball starts at $40 million and increases by 5% after every drawing if no winner is drawn. The prize has no limit and the biggest jackpot ever won in Powerball was worth $1.5 Billion.  It was split between three winning tickets. The second largest jackpot was worth $700 million and was won by Mavis Wanczyk single-handedly in 2017. Technically, that is the largest jackpot ever won and claimed by a single winning ticket.

Mavis Wanczyk might be lucky enough to win an enormous amount but she certainly did not get all of it. There are legal formalities, federal taxes, and state taxes that all take a bite out of the prize. The federal tax is 25% of the winning amount (and 30% for foreigners) whereas the state tax depends upon the state you’re residing in.  Another factor affecting your overall take-home cash is what payment method you select. You have the option of getting paid in a lump sum or an annuity. With the annuity, you would receive 30 installments over the time span of 29 years (you get the first installment immediately). With the lump sum, you get all your winnings in one shot minus the taxes.  This can leave you with almost half of the gross amount whereas with the annuity you pay taxes on the amount you receive every year which can be a lot less than the tax you on your lump sum payment.

For more details, read: Big Decision: Lump Sum or Annuity

There are some states which do not tax lottery winners like California but then there are states like New York where winners have to pay up to 8.82% of their winning amount. Here is a basic guide to the winning amount you would receive after winning a Powerball jackpot worth $700 Million on a state-by-state basis.

New Hampshire

State tax deducted in New Hampshire is 0% which makes it a winner-friendly state. If the winner goes for the lump sum payment, they’d receive a total of $332,475,000. If the winner goes for the annuity, they’d receive an average installment of $17,500,000 every year and will earn a total of $525,000,000 after 30 installments over the time period of 29 years.

Texas

There is no state tax in Texas which means, if the winner goes for the lump sum payment, they’d receive a total of $332,475,000. If the winner goes for the annuity, they’d receive an average installment of $17,500,000 every year and will earn a total of $525,000,000 after 30 installments over the time period of 29 years.

Indiana

Indiana state tax is fairly low as compared to other states, considering its just 3.4% of the total winnings of the winner. If the winner is opting for the lump sum, they are required to pay about $15,072,200 and receive a total of $317,402,800. By opting for the annuity, they’d pay $793,333 on every yearly installment of $16,706,667 and end up with a healthy earning of $501,200,010.

Missouri

In Missouri, you need to pay 4% of your total winnings as state tax. If you go for a lump sum payment you’d have to pay about $17,732,000 and end up with $314,743,000. If you opt for the annuity, you’d pay about $933,333 and receive an average of $16,566,667 as yearly installment and end up with a total of $497,000.010.

Ohio

In Ohio, you need to pay a 4% of your total winnings as state tax. If you go for a lump sum payment you’d have to pay about $17,732,000 and end up with $314,743,000. If you opt for the annuity, you’d pay about $933,333 and receive an average of $16,566,667 as yearly installment and end up with a total of $497,000.010.

Virginia

In Virginia, the winner needs to pay a 4% of your total winnings as state tax. If you go for a lump sum payment you’d have to pay about $17,732,000 and end up with $314,743,000. If you opt for the annuity, you’d pay about $933,333 and receive an average of $16,566,667 as yearly installment and end up with a total of $497,000.010.

Arizona

In Arizona, you need to pay a 5% of your total winnings as state tax. If you go for a lump sum payment you’d have to pay about $22,165,00 and end up with $310,310,000. If you opt for the annuity, you’d pay about $1,166,667 and receive an average of $16,333,333 as yearly installment and end up with a total of $489,999,990.

North Carolina

North Carolina enforces a state tax of 5.499% over the total winning amount. Which means the winner has to pay a total of $22,639,383 and will receive a net payout worth $308,097,933 with the lump sum payment option. And if the winner opts for the annuity, they will end up with a total sum of $486,507,000 after receiving an average installment of $16,216,900 every year for 29 years after paying the tax of $1,283,100 on each installment.

Minnesota

State tax deducted in Minnesota is 7.25% of the total winnings. If the winner goes for the lump sum payment, they have to pay about $32,139,250 and receive a total of $300,335,775. If the winner goes for the annuity, they have to pay $1,691,667 every year on the installment of $15,808,333 and will earn a total of $474,249,990 after 30 installments over the time period of 29 years.

Idaho

In Idaho, winners need to pay about 7.4% of their total winnings as state tax. If the winner considers taking the annuity as the payment option, they’d receive about $15,773,333 every year after paying about $1,726,667 as state tax and end up earning about $473,199,990 after 30 annuity payments. If the winner is considering taking the lump sum out, they’d end up receiving a total of $299,670,800 after paying $32,804,200 as state tax.

Wisconsin

State tax deducted in Wisconsin is 7.65% of the total winnings. If the winner goes for the lump sum payment, they have to pay about $33,912,450 and receive a total of $298,562,550. If the winner goes for the annuity, they have to pay $1,785,000 every year on the installment of $15,715,000 and will earn a total of $479,499,990 after 30 installments over the time period of 29 years.

Note: Annuity payments actually increase over time to compensate for inflation; therefore, the given estimates are an average of the 30 payments. Read more relevant information about lottery games by visiting The Lottery Lab.