There's been a lot of talk about winning the lottery lately. That's partly because of huge recent prizes like the $1.76 billion Powerball jackpot that goes down as the second-largest in U.S. lottery history. And now, the Mega Millions and Powerball jackpots are climbing again.
Of course, the IRS will take some tax “off the top” and then the winner will have to pay additional federal taxes based on the rate tied to their federal income tax bracket, which will be high, especially when a multibillion-dollar payout is involved.
And, there could be some state tax liability, depending on where you live. That is not great news for states that have the highest Powerball taxes.
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8 states that don't tax lottery winnings
However, the good tax news for some is that eight U.S. states currently don’t tax lottery winnings. But remember, these states still have to withhold federal taxes from your prize. Here they are.
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California
California doesn’t tax lottery winnings — that’s good news if you win the Powerball jackpot, as Californian Edwin Castro did with the World Record $2.04 billion Powerball jackpot and more recently, as the $1.08 billion Powerball winner and the $1.76B Powerball winner did. But it is no secret that the state gets much criticism for other high tax rates.
For example, Kiplinger has reported that California's reputation as a high-tax state is partly due to the relatively high prices of some goods. California also has one of the highest sales tax rates in the U.S., and high gas taxes add up for residents.
Florida
Florida also doesn't tax lottery winnings, so your Powerball prize will only be subject to federal taxes. (That's good news since a recent $1.58 billion Mega Millions winning ticket was sold in the state.) Florida is also one of nine states that don't have a personal income tax.
As Kiplinger reported, Florida property tax rates are relatively low compared to the national average, and a recently passed Florida tax relief bill allows Floridians to enjoy many items tax-free.
New Hampshire
Your lottery winnings will not be taxed at the state level in New Hampshire mainly because the state has no income tax and no sales tax. Although, New Hampshire does have fairly high property taxes when compared to other states. The state is phasing out its tax on dividends and interest income.
South Dakota
South Dakota is another state with no personal income tax, so it won’t take state tax out of your Powerball or other lottery winnings. The combined state and local sales tax rate in the state is fairly low, but sales tax in South Dakota applies to groceries and clothing.
Tennessee
Tennessee doesn’t tax Powerball winnings because the state has no income taxes.
And, although Tennessee has one of the highest sales tax rates in the U.S., it has relatively low property tax compared to other states and a generally low cost of living.
Texas
Texas is another state that won’t tax your Powerball lottery winnings. However, the state's sales tax rate of 6.25% is a bit high compared to other states, and localities can add 2% to that.
But gas prices in Texas are on the low side compared to other states, and voters approved major Texas property tax relief.
Washington
Washington has no personal income tax and won’t tax your lottery winnings at the state level. However, Washington’s state Supreme Court recently upheld a controversial capital gains tax that could wind up on the state ballot in November. Also, gas prices in Washington state for a time last year surpassed California’s as the most expensive in the U.S.
Wyoming
Wyoming doesn’t tax Powerball winnings and is one of 13 states that won’t tax your retirement income. And if that wasn’t enough good news for residents, Wyoming has no personal or corporate income taxes and no estate or inheritance taxes.
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