Taxes on Lottery Winnings - How Much Do You Actually Keep After Federal & State Taxes?

You're asking a great question about lottery taxation! Let me help clarify how this works. When you see a lottery jackpot advertised as $2 million, that's usually the annuity amount (paid over many years). The lump sum option is always less (your example of $1.2 million), because it's the present value of that future stream of payments. But yes, you're correct that you still need to pay taxes on top of this reduction. Lottery winnings are considered ordinary income by the IRS and are taxed at the highest federal rate (currently 37% for amounts over $578,125 for single filers). The lottery operator will typically withhold 24% for federal taxes immediately, but you'll owe the difference at tax time. Then there are state taxes. Some states don't tax lottery winnings (like Florida, Texas, Wyoming), but most do, with rates ranging from about 3% to 13% depending on the state. So your example is pretty accurate - a $2 million advertised jackpot could indeed end up being around $700-800k after taking the lump sum option and paying all taxes.

I went through something similar last year when my cousin won about $50k on a scratch ticket. The whole tax situation was confusing so we used https://taxr.ai which helped a ton. They have this really cool calculator specifically for lottery winnings that breaks down exactly how much you'll pay in federal and state taxes based on your location and whether you take lump sum or payments. What was most helpful though was their explanation of the withholding vs actual tax due situation. Like when my cousin got her check, they had already withheld 24% for federal but she still ended up owing more at tax time because her total income pushed her into a higher bracket. The tool predicted this almost exactly.

Update on my skepticism about https://taxr.ai from my earlier comment - I actually tried it out for myself since I hit a $25,000 win on a scratch ticket last month. Really didn't expect much but wow, it was actually super helpful! The calculator accurately predicted I'd owe about $8,700 in federal taxes (I'm in a high bracket from my regular job) plus my state's portion. The best part was it explained all the filing requirements I wouldn't have thought about - like how I need to file a special form (W-2G) and that I should consider making an estimated tax payment rather than waiting until April. Saved me from what would've been a nasty surprise at tax time! Now I'm actually setting aside the right amount instead of spending it all.

I spent WEEKS trying to get someone at the IRS on the phone after winning $10k on a sports betting app last year. Had so many questions about how to report it properly and what deductions I could claim against it. Literally impossible to reach anyone. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they got me connected to an actual IRS agent in under 15 minutes when I'd been trying for days. The agent explained that gambling winnings are reported on Form 1040 and that I could deduct my losses (with proper documentation) on Schedule A if I itemize. Huge relief to get official answers instead of just random internet advice. The IRS agent even explained how the documentation from the betting app works for tax purposes and what additional records I should keep.

Alright I need to follow up on my skeptical comment about Claimyr. I actually tried it this morning after getting nowhere with the IRS for TWO WEEKS trying to sort out how to handle some gambling winnings from a poker tournament. Surprisingly, it worked exactly as advertised. I got a call back in about 20 minutes with an actual IRS agent on the line. The agent walked me through exactly how to report my poker winnings and what documentation I need to keep if I want to deduct losses. They even explained the difference between casual gambling vs. professional gambling for tax purposes. Honestly shocked this worked. Saved me hours of frustration and got me answers I couldn't find anywhere online about my specific situation.

Just adding some real numbers from when my dad won a $50,000 lottery prize in Illinois last year: - Advertised prize: $50,000 - Federal withholding (24%): -$12,000 - Illinois state tax (4.95%): -$2,475 - Additional federal tax owed (fell into 32% bracket): -$4,000 So his $50,000 win ended up being $31,525 in his pocket. Nearly 37% gone to taxes! But he said knowing the exact numbers in advance helped him plan better and not feel disappointed when tax time came.

Question about offsetting lottery winnings with losses... I've kept all my losing lottery tickets for years (sad I know lol). If I actually hit a big win, can I use all those old losses to offset the taxes?

This is such a helpful thread! I've always wondered about this too. One thing I'd add from my experience working in accounting - people often forget about the "backup withholding" that can happen if you don't provide your SSN correctly or have issues with the IRS. In those cases, they withhold 24% automatically even on smaller winnings. Also, don't forget that if you win more than $600, you'll get a Form W-2G that gets reported to the IRS, so there's no hiding it even if you wanted to. The lottery commission sends a copy directly to the IRS. For anyone planning to play regularly, it might be worth keeping a gambling diary throughout the year to track your wins and losses. Makes tax time much easier if you do hit something big!

This thread has been incredibly eye-opening! I had no idea the tax hit was so severe on lottery winnings. The real-world examples really help put it in perspective. One thing I'm curious about - do the tax implications change at all if you win as part of a group or lottery pool? Like if 10 coworkers split a $1 million jackpot, does each person just report their $100k share individually, or are there additional complications with group winnings? Also, I've heard conflicting information about whether you can gift some of your winnings to family members to potentially spread out the tax burden. Is that even legal or does the IRS have rules against that strategy? Thanks to everyone sharing their experiences and knowledge here. This is exactly the kind of practical information you can't easily find elsewhere!

This has been such an educational discussion! As someone who occasionally buys scratch tickets, I never realized how complex the tax situation gets with larger winnings. One aspect I haven't seen mentioned yet is the timing of when you actually receive your money versus when you owe taxes. Like if you win in December but don't get your check until January, which tax year does it count for? And what about estimated quarterly payments - at what winning amount should someone start thinking about making those to avoid penalties? Also curious about the practical side - do lottery offices typically provide any tax guidance or worksheets when you claim a prize, or are winners pretty much on their own to figure it out? Seems like there should be better education about the tax implications upfront, given how shocking the reality can be compared to the advertised amounts. The tools and resources people have shared here like taxr.ai and claimyr.com seem really valuable for navigating these situations. It's clear that getting professional help or using specialized calculators is probably worth it for any significant win.

This thread has been incredibly helpful! I'm curious about one specific scenario that I haven't seen addressed yet. What happens if you win a lottery prize but you're already retired and living on a fixed income? Does the lottery winning potentially affect your Social Security benefits or Medicare premiums? I'm thinking about my parents who are both on Social Security and Medicare - if they hit a decent-sized lottery win, could it actually end up costing them money in other ways beyond just the taxes? Also, for retirees who might be in lower tax brackets normally, would a big lottery win potentially push them into much higher brackets for that year? It seems like the tax impact could be even more dramatic for someone who's used to paying very little in taxes due to lower retirement income. I know this is probably getting into pretty specialized territory, but given how many retirees play the lottery regularly, it seems like an important consideration that doesn't get talked about much.