Taxes and Fees on Lottery Winnings


Lottery is a gambling game in which tickets are sold for chances to win prizes (usually money or goods) that are determined by chance. Prizes may also be based on skill or knowledge. It is a common form of fundraising for charities and other public and private purposes. Lottery is usually regulated by law to ensure fairness and legality.

Modern examples of a lottery include the issuance of military conscription drafts and commercial promotions in which property is awarded by a random procedure. It is also used in the selection of jury members and for a variety of other purposes. In a strict sense, lottery is considered gambling because payment of a consideration (either money or property) in exchange for a chance to win a prize is required.

In the United States, lottery winnings are paid out in either annuity payments or lump sums. When deciding how to receive your winnings, it’s important to consider taxes and fees. Generally speaking, a lump sum option is less tax-efficient than an annuity payment, because it results in a smaller total payout after federal and state income taxes are applied. Lottery payments are taxed at a maximum federal rate of 37%. In addition, state income taxes vary and some have additional tax withholdings.