If I live in a state that taxes prizes, but bought my ticket in a state with no tax on prizes, do I still need to pay state tax?
Yes, you do. Think of lottery prizes as regular earned income from a job. Just because you may work in a different state, that doesn’t permit you to get away with not paying state income tax in your state of residence. The lottery works the same way.
Whether it’s income from a job or income from gambling, the state where the money is won will tax the prize first at their out-of-state tax rate (assuming the state taxes lottery winnings). If your state of residence has the same or lower tax rate, then you won’t owe anything else. But if your state has a higher rate, you will get a credit for what you paid in the other state, and pay the difference to your state.
If the other state has no tax, you just pay the entire tax bill to your state.
The net result is that you end up paying whichever tax rate is higher between your state of residence and the state where you purchased the ticket. Of course, the tax law is quite complex and it’s possible that some condition or arrangement exists between the two states and a good tax attorney and/or accountant could discover a tax-saving loophole. That’s why we always recommend that major prize winners do not make any major decisions before first hiring a good legal and financial team.
One other option to consider, depending on how much in taxes you’re looking to save: the residency requirements as they relate to prize claims, state taxes, and income reporting. Since you aren’t responsible for paying taxes until you claim the prize, perhaps there is time to establish residency in the state where you purchased the ticket before the prize claim period expires. However, that is something you would definitely need to explore with an attorney before taking any action to assess the feasibility. You would also need to decide if it would be worth the risk of that important little piece of paper not getting lost, damaged, or destroyed in the time you spend arranging everything.
What is the Power Play?
Power Play is an option that is currently offered in all states that sell Powerball tickets except California. For an extra $1.00 per ticket you can increase your non-jackpot prize winnings by 2, 3, 4, 5, or 10 times. (The 10 times Power Play is only available when the jackpot is $150 million or less.) The Power Play number is randomly drawn from a pool of multipliers that includes two 5Xs, three 4Xs, 13 3Xs, and 24 2Xs, plus one 10X when the jackpot is $150 million or less.
Power Play is not available in California because of state law that requires all lottery prizes to be paid out on a pari-mutuel basis.
The Power Play multiplier number is chosen at random just before the Powerball winning numbers are drawn.
A player must choose the Power Play option when they buy their Powerball ticket, and then the ticket must match one of the 9 Ways to Win (except the jackpot) before the multiplier takes effect. Power Play costs an extra $1 per play. See How to Play Powerball for more information.
Jackpot! A lucky lotto player in California had all the winning numbers after Saturday’s Powerball drawing, lottery officials said.
The grand prize reached an estimated $447.8 million.
The winning ticket was sold at a store in Menifee, southeast of Los Angeles.
Matthew Alberre, the manager of family-owned Marietta Liquor, told KCAL/KCBS he couldn’t believe the news when he got a call from a lottery representative on Saturday night. But it’s still unclear who bought the ticket from his store.
The winning numbers were 20, 26, 32, 38, 58 and the Powerball was 3.
The massive jackpot came in at tenth in the list of the largest awarded US lottery prizes of all time — a list that includes Mega Millions and Powerball winnings, the U.S.’s two largest games. Saturday night’s total surpasses the $435 million a jackpot claimed by someone in Indiana in February. That winner used a corporation to shield his or her identity.
If it seems like huge Powerball jackpots have become more common, that’s because they have.
Saturday’s $447.8 million prize means that six of the 10 largest Powerball jackpots ever have happened since the start of 2016.
The reason: Powerball changed its formula in October 2015 to give players more numbers to choose from.
And more numbers mean longer odds of a winner. The odds of winning Powerball are now 1 in 292 million, or 0.0000003%. Before the switch, the Powerball odds were 1 in 175 million.
With fewer winners, the jackpot has the chance to grow bigger week after week.
The biggest jackpot ever took place in January 2016, soon after the odds changed. That payout reached a record $1.6 billion — the one and only time it has crossed the billion dollar mark. The Powerball prize also climbed above $400 million in May, July and November of last year, in addition to the $435 prize in February.
Meanwhile, the Mega Millions game, which costs half as much to play, has only had four jackpots in its history that topped $400 million. Only one of those big payouts, a $536 million jackpot, came last year. The odds against winning Mega Millions are 1 in 259 million.
Of course, the size of those jackpots are inflated. They assume the winner takes annuity payments spread out over 29 years.
But virtually every jackpot winner chooses to take a smaller, lump sum payment up front. The lump sum value of Saturday’s $447.8 million jackpot could be close to $300 million. And of course, no matter how the winners or winner decide to accept their earnings, they’ll have an enormous tax bill.
Powerball and Mega Millions are now available in 44 states. All of them say that the profits provide billions in funding to schools and other social programs. But many economists argue that it’s a regressive tax, since poor and working class individuals spend a much larger percentage of their money on lottery tickets than wealthier consumers. Americans spent $73 billion on lottery tickets in 2015, the most recent year for which data is available. That’s more than they spent on music, movies, books, video games and sports tickets, combined.
Correction: An earlier version of this story stated that this was the seventh largest jackpot in U.S. history. It is the tenth largest.
CNNMoney (New York) First published June 11, 2017: 1:02 AM ET
Why is the cash option always a different percentage of the annuity from draw to draw?
If you’re calculating what percentage the cash value is of the annuity, then you’re looking at it backwards. The cash value is the starting point, as it is a direct percentage of ticket sales. Then the annuity amount is calculated from that, based on prevailing interest rates. Since the interest rates are constantly changing, the annuity amount calculated on one day will be a different number than if it is calculated the next day. So when a drawing occurs and the lottery has to estimate the next annuity jackpot, they first estimate the number of tickets that will be sold for the next drawing, which determines what the cash value estimate is (because a fixed percentage of each ticket sold goes toward prizes). Then they finally calculate what the annuity will be based on the current interest rates.
Are lottery prizes taxable?
Lottery winnings of $600.01 and over are subject to Federal Withholding tax. For
winnings of $600.01, up to and including $5,000, you will be issued a W-2G form
to report your winnings on your federal income tax form. For winnings of
$5,000.01 and over, your state’s Department of Revenue removes the 24 percent federal
withholding before you receive your winnings check (or, if it is
an annuity, from each winnings check). You then receive a W-2G form with each
check to submit with your 1040 form to show that the 24 percent federal
withholding already has been paid. In addition to federal tax, your state will
make additional withholdings for taxes, and most states will deduct other money that
you may owe to the state, such as back taxes, child support, loan payments, etc.
In addition, like the federal tax withholding, the state tax withholding at the time
of prize payout may not be the total state tax owed at the end of the year.
You must consult your state division of taxation for more information about the total
state tax requirements for lottery winners.
The state tax withholdings are as follows:
|Arizona||5% state withholding (Arizona residents), 6% state withholding (non-Arizona residents)|
|Arkansas||7% state withholding|
|California||No state tax on lottery prizes|
|Colorado||4% state withholding|
|Connecticut||6.99% state withholding|
|Delaware||No state tax on lottery prizes|
|Florida||No state tax on lottery prizes|
|Georgia||6% state withholding|
|Idaho||6.925% state withholding|
|Illinois||4.95% state withholding|
|Indiana||3.23% state withholding|
|Iowa||5% state withholding|
|Kansas||5% state withholding|
|Kentucky||5% state withholding|
|Louisiana||5% state withholding|
|Maine||5% state withholding|
|Maryland||8.95% state withholding (Maryland residents), 8% state withholding (non-Maryland residents)|
|Massachusetts||5% state withholding|
|Michigan||4.25% state withholding|
|Minnesota||7.25% state withholding|
|Mississippi||5% state withholding|
|Missouri||4% state withholding|
|Montana||6.9% state withholding|
|Nebraska||5% state withholding|
|New Hampshire||No state tax on lottery prizes|
|New Jersey||8% state withholding|
|New Mexico||6% state withholding|
|New York||8.82% state withholding, plus: 3.876% (NYC residents), 1.323% (Yonkers residents)|
|North Carolina||5.499% state withholding|
|North Dakota||2.9% state withholding|
|Ohio||4% state withholding|
|Oklahoma||4% state withholding|
|Oregon||8% state withholding|
|Pennsylvania||3.07% state withholding|
|Puerto Rico||No state tax on lottery prizes|
|Rhode Island||5.99% state withholding|
|South Carolina||7% state withholding|
|South Dakota||No state tax on lottery prizes|
|Tennessee||No state tax on lottery prizes|
|Texas||No state tax on lottery prizes|
|U.S. Virgin Islands||† Unknown State Tax Rate|
|Vermont||6% state withholding|
|Virginia||4% state withholding|
|Washington||No state tax on lottery prizes|
|Washington, D.C.||8.5% state withholding|
|West Virginia||6.5% state withholding|
|Wisconsin||7.65% state withholding|
|Wyoming||No state tax on lottery prizes|
† This state/jurisdiction has not responded to our requests for this information.
Is it legal to play the lottery over the Internet?
The state lotteries and MUSL (the organization that runs Powerball) are all very firm in their assertion that playing the lottery in any manner over the Internet is illegal. We are not lawyers and can’t provide legal advice, but we are not so sure about their position. Their absolute certainty that it is illegal may have more to do with not wanting to lose control of the player interaction, and less to do with a firm legal footing.
When we assess the legality, we look at what has actually happened in court cases. There have been people in the past who purchased a lottery ticket from an Internet Web site, subsequently won the jackpot, and the lottery attempted to block them from receiving the jackpot. In each case, the winners took the lottery to court and won. They received their jackpot as if they walked into a store and purchased a ticket.
You must keep in mind that any type of Internet-based lottery service is not risk-free. From a legal standpoint, the services are dealing in loopholes in the current law, and the US Congress has taken steps to make those loopholes tighter, particularly in trying to prevent banks and credit cards from allowing Internet payments for lottery services. But there is a much bigger threat when you use an Internet lottery service: getting ripped off.
By not making a purchase in a store, you may be doing something worse than throwing your money away: you may be helping to keep a scam operation running. Stay away from anything referring to a «syndicate». We are not aware of any site using that terminology that is not a scam. Also beware of sites that state «Insured by ___» at the bottom. It is like saying «We don’t really buy lottery tickets, but trust us, you’ll get paid if you win.» Have you ever heard of an insurance company paying out a $200 million Powerball jackpot? We haven’t.
We do allow some advertising on USA Mega for lottery services. We recommend that USA residents stay away from such services, and make your purchases in a store. The ads are directed at non-USA residents, who may not have the online lottery restrictions that exist in the USA.
Can non-US citizens play? What if a non-US citizen wins?
Yes, non-US citizens can legally play, and non-US citizens are eligible to win any prize offered in the game.
If a non-US citizen wins, they would claim their prize in the same manner that a US citizen would, but the taxes withheld would be different. For example, federal withholding for non-US citizens is a flat 30%. Also, individual states may have different tax structures for non-US citizens than they do for US citizens. Depending on which country the person is a legal resident of, there also may be tax treaties between the US and that other country which could be helpful in offsetting whatever the US tax liabilities are.
In short, non-US citizens can play and win Powerball. If a non-US citizen wins a large prize, they will be responsible for some amount of tax, which in the end will probably be an amount similar to what a US citizen would pay, but there are so many possible variations with international tax codes that you’ll need to consult with a local tax attorney if you need to know a precise amount of tax liability.