The winning Powerball numbers are in and since the lottery jackpot prize is $1.76 billion, many people are thinking about the prospect of winning the next one — and, unfortunately, paying taxes. Although some states won’t tax your Powerball winnings, many states will, and some have higher tax rates than others.
Powerball after taxes: Highest lottery tax states
Here are the states with the highest lottery tax rates. (It is important to note that you will also pay federal taxes on your Powerball prize. Generally, 24% comes off the top for federal income tax. You will likely pay additional tax on your income when you file your return at a rate that depends on your income tax bracket.)
New York state tax rate on lottery winnings: 8.82%
According to New York state law, If the proceeds from your lottery win are $5,000 or less, the prize payment isn’t considered New York source income. So smaller prize money amounts won’t be subject to New York income tax. (In New York, “proceeds” are the total amount of the prize minus the cost of the winning ticket.)
Note: A Powerball ticket costs $2 per play.
Maryland tax rate on lottery winnings: 8.75%
Maryland will deduct 8.95% of state tax if you’re a resident and your prize exceeds $5,000. If you’re a non-resident, the state tax withholding rate on your lottery winnings will be 8%.
Remember, the state tax is in addition to the 24% initial withholding for federal taxes. Also, you are required to report your lottery winnings on your tax return since the Maryland lottery says prizes from $601 to $5,000 may be taxable.
Washington, DC tax rate on lottery winnings: 8.5%
Washington, DC, isn't a state. However, according to the District of Columbia’s Office of Lottery and Gaming, winnings over $5,000 are subject to an 8.5% tax rate for District income tax.
However, under Washington DC regulations, all lottery winnings that exceed $600 are reported to the District Office of Tax and Revenue.
Honorable Mentions: Oregon and New Jersey
Oregon tax rate on lottery winnings: 8%
Oregon withholds an 8% state tax on lottery prizes of $1,500 or more. So, your lottery prize payout comes minus the 8% state tax. The state reminds taxpayers that any large lottery prize is considered taxable income.
However, the Oregon Lottery provides guidance on its website regarding lump sum vs. annuity payouts and taxes. “An annuity option pays out a larger amount of dollars over 30 years, but each annuity payment would be subject to tax. A one-time lump sum cash payment pays out less overall but, as it comes in a single payment, gets taxed at payout.”
New Jersey tax rate on lottery winnings: Up to 8%
According to the state’s lottery, New Jersey taxes lottery prizes of more than $10,000 and up to $500,000 at a rate of 5%. But since we’re talking about a massive Powerball jackpot, the state’s higher 8% withholding tax rate applies to a lottery prize greater than $500,000.
Winners receive a Form W2-G at the end of the year. That form shows the amount of lottery prize winnings that should be reported as income and the amount of federal and state taxes withheld.
As the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal and state tax information, news, and developments to help empower readers. Kelley has over two decades of experience advising on and covering education, law, finance, and tax as a corporate attorney and business journalist.
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