Lottery winnings in the United States are fully taxable as gambling income. You must report the full prize on your federal tax return, even if you do not receive Form W-2G. Your final federal tax depends on your total taxable income and filing status. State and local taxes depend on the relevant jurisdiction.
For tax year 2026, federal individual income tax rates range from 10% to 37%. Lottery operators generally withhold 24% from qualifying winnings, but that withholding may not cover your final tax bill.
Lottery Winnings Tax at a Glance
| Tax issue | How it works |
|---|---|
| Federal income tax | Lottery winnings are added to your taxable income |
| Federal withholding | Generally 24% when lottery proceeds exceed $5,000 after subtracting the wager |
| Final federal tax | Your marginal tax rate may be higher or lower than 24% |
| State and local tax | May apply separately and varies by jurisdiction |
| Lottery losses | Deductible only if you itemize, and only up to your reported winnings |
| Annuity payments | Each payment is generally taxed when received |
| Cash option | The amount received is generally taxable in the year you receive it |
How Much Federal Tax Is Withheld From Lottery Winnings?
Lottery operators generally withhold 24% when the proceeds exceed $5,000 after subtracting the wager. The 24% applies to the entire qualifying amount, not only the portion above $5,000.
For a $1,000,000 prize:
- Federal withholding at 24%: $240,000
- Amount initially paid to you: $760,000
- Remaining federal tax: May be due when you file your return
The lottery generally reports the winnings and withholding on Form W-2G. You usually report the winnings on Schedule 1 of Form 1040 and claim the federal withholding as a payment toward your tax liability.
What Is the Final Federal Tax Rate on Lottery Winnings?
Lottery winnings do not have a separate federal tax rate. Your final tax depends on your total taxable income, filing status, deductions and other income.
Example: $1 Million Lottery Prize in 2026
Assume a single taxpayer:
- Receives $1,000,000 in lottery winnings during 2026
- Has no other income
- Takes the 2026 standard deduction of $16,100
- Has no tax credits or other adjustments
The 24% withholding would be $240,000. After the standard deduction, taxable income would be about $983,900. Applying the 2026 federal tax brackets produces a federal income tax liability of about $320,000.
That would leave roughly $80,000 more due to the IRS before state or local taxes. The result could change if you are married, have other income, claim deductions or credits, or make charitable contributions.
Do States and Cities Tax Lottery Winnings?
Yes. State and local governments may impose taxes on lottery winnings. The amount can depend on the state that issued the ticket, your state of residence and local tax rules.
Federal withholding does not automatically cover state or local tax. Form W-2G can show state and local winnings and tax withheld when those requirements apply.
How Are Lottery Annuity Payments Taxed?
Each annuity payment is generally included in your income when you receive it. Interest identified as part of unpaid installment payments may also be taxable.
An annuity can spread taxable income across multiple years. A cash option generally puts a larger taxable amount into the year you receive the payment. Payout choices and claim deadlines depend on the lottery, so review them before claiming the prize.
Can You Deduct Lottery Tickets or Gambling Losses?
You may deduct gambling losses, including eligible lottery ticket costs, only when you meet all three conditions:
- You itemize deductions on Schedule A.
- You keep adequate records of your winnings and losses.
- You limit the deduction to the amount of gambling winnings you report.
Gambling losses cannot create an overall tax loss from lottery activity.
What Should a Lottery Winner Do Before Filing Taxes?
Before filing, a lottery winner should:
- Keep the winning ticket, claim documents and Form W-2G.
- Set aside more than the initial 24% withholding if the prize moves them into a higher tax bracket.
- Estimate federal, state and local tax before spending the winnings.
- Compare the tax and financial effects of an annuity and a cash option.
- Make estimated tax payments if withholding will not cover the expected liability.
Treat the 24% withholding as a prepayment, not as the final federal tax bill. State and local taxes may also apply.