There's been a lot of talk about winning the lottery lately. That's partly because of huge recent prizes like the Oct. 11 $1.76 billion Powerball jackpot that goes down as the second-largest in U.S. lottery history.
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's not great news for states that have the highest Powerball taxes.
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.
More from Kiplinger | Powerball Jackpot Winner Will Get a Huge Tax Bill
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 late last year and more recently, as the $1.08 billion Powerball winner did and the $1.76B Powerball winner from October will. But it’s 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 also doesn't tax lottery winnings, so your Powerball prize will only be subject to federal taxes. (That's good news since a $1 million Powerball ticket was recently sold in the state along with the $1.58 billion Mega Millions winning ticket.) 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.
Your lottery winnings won’t 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 and taxes dividends and interest income at 5%.
- Related: States With No Sales Tax
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 doesn’t tax Powerball winnings because the state has no income taxes. Residents will also have some key sales tax holidays in Tennessee and grocery tax relief. 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 is another state that won’t tax your Powerball lottery winnings. (According to Powerball, two players matched enough numbers in a recent Powerball drawing to win $1 million each. Another ticket recently won $2 million.)
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 lawmakers just agreed on major Texas property tax relief.
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. Also, gas prices in Washington state for a time last month surpassed California’s as the most expensive in the U.S.
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.
More From Kiplinger
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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