Lottery winnings do not generate a tax refund, but they do affect whether you receive one

A tax refund is money the government returns to you because you overpaid taxes during the year. Lottery winnings are not a refund—they are income. The IRS taxes lottery prizes as ordinary income, which means the money you win gets added to your total taxable income for the year. This can push you into a higher tax bracket, reduce or eliminate a refund you would have otherwise received, or create a tax bill you owe instead.

The lottery operator withholds federal tax at the time you claim your prize. For most lottery games, that withholding is 24 percent of the winnings. That 24 percent is not your final tax bill—it is a prepayment toward what you will actually owe. When you file your tax return, the IRS calculates your true tax liability based on all your income for the year, including the lottery winnings. If the 24 percent withheld is more than what you actually owe, you get a refund. If it is less, you owe more.

Key Takeaways

  • The lottery operator withholds 24 percent of your winnings as federal tax, but this is a prepayment, not your final bill.
  • Your actual tax rate on lottery winnings depends on your total income for the year and your tax bracket, which can be higher than 24 percent.
  • Large lottery winnings often push you into a higher tax bracket, meaning you owe more in taxes than the 24 percent withheld.
  • State and local taxes on lottery winnings vary by location and can add 5 to 13 percent or more to your federal tax bill.
  • You report lottery winnings on your tax return using Form 1040 and Schedule 1, and the withholding appears on a Form W-2G from the lottery operator.

How the 24 percent withholding works

When you win a lottery prize of $600 or more, the lottery operator is required by federal law to withhold 24 percent for federal income tax. This happens when ready when you claim your prize. If you win $10,000, the operator withholds $2,400 and pays you $7,600. That $2,400 goes directly to the IRS as a tax prepayment on your behalf.

The 24 percent rate is a flat federal withholding, not your actual tax rate. It is the same for every winner, regardless of income. For many people, 24 percent is less than their actual tax liability on the winnings. For a smaller number of people, it is more. The difference shows up when you file your tax return.

Why you might owe more than the 24 percent withheld

Lottery winnings are taxed at your marginal tax rate—the rate that applies to your highest income. If you earn $50,000 a year and win $100,000, your total income is $150,000. The $100,000 in winnings is taxed at whatever bracket that $150,000 puts you in, not at 24 percent.

For 2024, the federal tax brackets for single filers range from 10 percent to 37 percent depending on income. If your winnings push you into the 32 percent or 35 percent bracket, you owe more than the 24 percent that was withheld. The difference is due when you file your return. This is the most common scenario for large lottery prizes.

Example: You win $500,000 and the lottery withholds $120,000 (24 percent). Your other income for the year is $75,000. Your total taxable income is $575,000. At that income level, you are in the 35 percent federal bracket. Your actual federal tax on the $500,000 in winnings is $175,000. You already paid $120,000 through withholding, so you owe an additional $55,000 when you file.

State and local taxes on lottery winnings

Federal withholding is only part of the picture. Most states also tax lottery winnings, and some cities do as well. State tax rates on lottery prizes range from about 2 percent to 13 percent, depending on where you live. Some states do not tax lottery winnings at all—including California, Florida, South Dakota, Tennessee, Texas, Washington, and Wyoming.

The lottery operator does not automatically withhold state tax. You are responsible for paying it when you file your state return, or the operator may withhold it if your state requires it. This means your total tax bill on lottery winnings can easily exceed 30 percent, and in high-tax states it can reach 50 percent or more when federal and state taxes are combined.

If you win in one state but live in another, you may owe tax to both states. The rules vary, and some states have reciprocal agreements. This is one reason to consult a tax professional before claiming a large prize.

How lottery winnings appear on your tax return

The lottery operator sends you a Form W-2G for any prize of $600 or more. This form shows the gross amount of your winnings and the federal tax withheld. You report this information on your Form 1040 and Schedule 1 (Additional Income and Adjustments to Income). The winnings go on the line for "other income."

When you file, the IRS matches the W-2G to your return and verifies that the withholding was reported correctly. If you won multiple prizes, you receive multiple W-2G forms, one for each prize of $600 or more. Smaller prizes under $600 are typically not reported to the IRS, though you are still legally required to report them as income.

When lottery winnings reduce or eliminate your refund

If you were expecting a refund before winning the lottery, the winnings can reduce or wipe out that refund. This happens because the winnings increase your total taxable income, which increases your total tax bill. If your total tax bill (including the tax on the winnings) is now higher than all the tax you paid throughout the year, you owe money instead of receiving a refund.

The timing of when you claim the prize matters. If you win in December and claim the prize in January of the following year, the winnings are taxed in the year you claim them, not the year you won. This can affect whether you receive a refund for that tax year.

What to do if you win a large lottery prize

Before claiming a prize larger than $5,000 or $10,000, consider speaking with a tax professional or certified public accountant. They can help you understand your total tax liability, including federal, state, and local taxes. They can also advise you on whether to claim the prize as a lump sum or annuity (if that option is available), because the tax consequences differ.

Some lottery winners choose to claim prizes in the name of a trust or legal entity to manage privacy and tax planning, though the rules for this vary by state and lottery. A tax professional can explain what is allowed in your state and what makes sense for your situation.

Keep records of the W-2G form and any state tax withholding documents. If you owe additional tax beyond what was withheld, you may need to make a payment when you file, or you may be able to adjust your withholding for the following year to avoid a large bill again.

Frequently Asked Questions

Can I get a refund on the taxes withheld from my lottery winnings?

Only if the 24 percent withheld is more than your actual tax liability on the winnings. This is rare for large prizes because the winnings usually push you into a higher tax bracket. You would see a refund only if your other income is very low or if you have large deductions or credits that reduce your overall tax bill.

Do I have to report lottery winnings under $600?

Yes. The lottery operator does not report prizes under $600 to the IRS, but you are required to report all gambling winnings as income on your tax return. Failing to report them is tax evasion, even if the amount is small.

What happens if I don't claim my lottery prize right away?

The tax is calculated in the year you claim the prize, not the year you won it. If you win in 2024 but claim the prize in 2025, the winnings are taxed on your 2025 return. This can affect your refund for that year instead of the year you won.

Can I deduct lottery losses against my winnings?

You can deduct gambling losses, but only up to the amount of your gambling winnings, and only if you itemize deductions on your tax return. You must keep records of all losses. Most people take the standard deduction, which means they cannot deduct losses at all.

Will winning the lottery affect my benefits or credits?

Lottery winnings count as income and may affect means-tested benefits like the Earned Income Tax Credit, child tax credits, or government information programs. The impact depends on your total income and the specific program. This is another reason to speak with a tax professional before claiming a large prize.