Colorado lottery tax: withheld at one rate, taxed at another
The Colorado Lottery withholds 4 % for the state on prizes over $5,000, but the 2026 income tax rate is 4.4 %. The difference is due in April.
- Income tax rate 2026
- 4.4 %
- State withholding
- 4 %
- Withheld above
- $5,000
- Non-US winners, federal
- 30 %
Owed with the return on top of withholding
$101,180
Federal withholding is 24 % of a prize over $5,000; the federal tax actually due on this prize is $337,180 (33.7 %).
| Federal tax due | $337,180 |
| Federal withholding | $240,000 |
| State and city tax due | $44,000 |
| State withholding | $40,000 |
| Total withheld | $280,000 |
| Total tax | $381,180 |
Compiled by Radif Partners · How we calculate · brackets, state rates and lottery rules read on official sites · estimate, not tax advice
Colorado taxes income at a flat 4.4 %, the rate built into the Department of Revenue's 2026 withholding worksheet, and a lottery prize is income like any other. The Colorado Lottery holds back 24 % federal and 4 % state on prizes over $5,000, so the state withholding falls short of the tax by 0.4 % of the prize. On a $100,000 prize a resident owes Colorado $4,400, has $4,000 withheld, and pays the remaining $400 with the return. Winners who are not US citizens or residents have 30 % federal plus the same 4 % state withheld. Colorado also taxes nonresidents on prizes from games conducted in Colorado: a Wyoming resident who wins $500,000 on a Colorado ticket pays Colorado $22,000, with no Wyoming return to credit it. The rate can be reduced temporarily when TABOR revenue limits are exceeded, a decision made only after the fiscal year.
Colorado withholding against the tax due
Refund expected
$1,486
| Federal tax due | $22,114 |
| Federal withholding | $24,000 |
| State and city tax due | $4,400 |
| State withholding | $4,000 |
Two percentages that do not match
The claim instructions of the Colorado Lottery state that prizes of more than $5,000 are withheld at 24 % federal and 4 % state for US citizens and residents (Colorado Lottery, Claiming Prizes). The Department of Revenue's topic sheet on gambling winnings, revised in March 2026, says payers in Colorado withhold 4 % whenever the winnings are subject to federal withholding (Withholding Tax Topics: Gambling Winnings). The income tax itself is 4.4 % in the 2026 employer worksheet (DR 1098, 2026 withholding worksheet).
The gap is small in percentage and large in dollars once the prize is large. A Denver couple with $160,000 of salaries who takes the $267.5 million cash value of the October 21, 2026 Powerball jackpot has $10,700,000 withheld for Colorado and owes $11,770,000. The $1,070,000 difference is on top of the federal balance of $34,726,911.
| Colorado resident | CO withheld | CO tax | Federal tax | Kept |
|---|---|---|---|---|
| $100,000, single | $4,000 | $4,400 | $22,114 | $73,486 |
| $267.5 million Powerball cash, married couple | $10,700,000 | $11,770,000 | $98,926,911 | $156,803,090 |
The TABOR caveat on the rate
Colorado's constitution limits how much revenue the state may keep, and state law allows a temporary cut in the income tax rate for a year in which the excess triggers it. The 4.4 % used here is the rate in the 2026 withholding worksheet; whether a temporary reduction applies to 2026 can only be known after the state's fiscal year closes. If it does, the tax on a 2026 prize is lower than shown, and the withholding gap narrows. The Department's income tax guide still lists the 2025 rate and has no 2026 entry yet (Individual Income Tax Guide).
Colorado starts its return from federal taxable income, so the state has no standard deduction of its own. The calculator applies the rate to total income with no deduction, which overstates the Colorado tax slightly next to a return that starts from federal taxable income; on a large prize the difference is a small share of the total.
Who pays Colorado: residents everywhere, visitors on Colorado games
Colorado taxes the income of every resident, wherever it was earned, and the Colorado-source income of nonresidents (Individual Income Tax Guide); its withholding guide makes any payer of winnings within Colorado withhold state tax when the prize is subject to federal withholding (Withholding Tax Topics: Gambling Winnings). The Lottery withholds the same 4 % from nonresident winners. For Colorado's neighbors the result depends on whether their own state taxes the prize.
| Situation | Colorado | Other state | Kept |
|---|---|---|---|
| Wyoming resident, Colorado ticket | $22,000 | $0 | $323,886 |
| Nebraska resident, Colorado ticket | $22,000 | $750 | $323,136 |
| Colorado resident, Wyoming ticket | $22,000 | $0 | $323,886 |
| Colorado resident, Nebraska ticket | $0 | $22,122 | $323,764 |
| Colorado resident, Kansas ticket | $0 | $27,186 | $318,700 |
Cheyenne and Laramie are close to the line, and Wyoming has no income tax, so a Wyoming resident on a Colorado ticket simply pays Colorado. A Coloradan who buys in Wyoming pays the full Colorado tax at home, because Wyoming takes nothing and there is nothing to credit. Tickets bought in another state runs any pair of states.
The credit for tax paid to another state
Only residents, and part-year residents for the period of residence, can claim it. The Department's topic sheet sets a limit per state: the Colorado tax multiplied by the share of modified Colorado income that comes from that state, and the credit allowed is the smaller of that limit and the tax actually owed to the other state (Credit for Tax Paid to Another State). Because Colorado's rate is flat and low next to many neighbors, a resident who wins in a higher-tax state usually gets a credit equal to the whole Colorado tax on the prize, and the other state's tax remains the larger cost. The credit for tax paid to another state works through the formula.
What the sources leave open
Two points could not be confirmed from Colorado sources: how gambling losses are treated now that the federal deduction is limited to 90 % of losses (Colorado starts from federal taxable income, so itemized losses would normally carry through), and the current form number of the credit. The figures are estimates on 2026 rules, not tax advice. If gambling has become a problem, help is available at 1-800-MY-RESET, the National Problem Gambling Helpline (NCPG).