Lottery winnings tax: the rules in five steps
What happens, in order, when a lottery prize meets the tax code. The examples use a $100,000 prize won in the Midwest.
- Type of income
- ordinary
- Federal rates
- 10 % to 37 %
- W-2G from
- $2,000
State and local tax, ticket bought in Nebraska
$4,110
Bought at home in Iowa: $3,800. Difference: $310.
| Prize this year | $100,000 |
| Federal income tax (top rate reached 24 %) | $22,114 |
| Nebraska tax as a nonresident | $4,110 |
| Iowa tax before credit | $3,800 |
| Credit for the Nebraska tax | -$3,800 |
| Withheld when the prize is paid | $27,500 |
| Refund expected with the return | $1,276 |
| After all taxes | $73,776 |
Nebraska taxes nonresidents on prizes of its lottery. Iowa credits the tax paid to Nebraska, up to its own tax on the prize.
Compiled by Radif Partners · How we calculate · brackets, state rates and lottery rules read on official sites · estimate, not tax advice
Lottery winnings are ordinary income. They are not capital gains, not wages, and not exempt: the IRS says gambling winnings are fully taxable and include winnings from lotteries and raffles, in cash or as the fair market value of prizes such as cars and trips. The prize is added to your other income of the year and taxed at the 2026 federal brackets, from 10 % to 37 %. On a $100,000 prize, a single Iowa resident with $60,000 of other income pays $22,114 of federal tax and $3,800 of Iowa tax, and keeps $74,086. A married Iowa couple with $110,000 of wages keeps $76,500. Where the ticket was bought matters: the Iowa resident who won on a Nebraska ticket keeps $73,776, and the Nebraskan with an Iowa ticket $73,336, after the nonresident tax and the home-state credit. In South Dakota, with no income tax, the same prize leaves $77,886.
One prize, two states
State and local tax, ticket bought in Nebraska
$4,110
| Prize this year | $100,000 |
| Federal income tax (top rate reached 24 %) | $22,114 |
| Nebraska tax as a nonresident | $4,110 |
| Iowa tax before credit | $3,800 |
Ordinary income, fully taxable
The IRS states the starting point in one line: gambling winnings are fully taxable and must be reported on the return, and gambling income includes winnings from lotteries, raffles, sports betting, horse races and casinos, in cash or as the fair market value of prizes (IRS Topic 419). There is no special lottery rate. The prize is reported with the other income on Schedule 1 of Form 1040, whether or not the lottery issued a Form W-2G, and it is taxed at the same brackets as a salary. The 2026 brackets come from Rev. Proc. 2025-32.
| Step | What happens |
|---|---|
| 1. Federal tax | the prize is added to your other income and taxed at the 2026 brackets |
| 2. State of purchase | when it is not your home state, it may tax you as a nonresident |
| 3. Home state | taxes residents on all income, then credits the other state's tax |
| 4. City or county | New York City, Yonkers and Maryland counties add their own tax |
| 5. Withholding | 24 % federal over $5,000, plus the lottery state's rate |
Step 1: the federal brackets
Because the prize sits on top of your other income, its tax depends on where that income already stands. For the single Iowan with $60,000 of wages, the $100,000 prize is taxed mostly at 22 % and 24 %: $22,114. The lottery withheld $24,000, so -$1,886 remains to pay. Prizes large enough to reach the 37 % bracket, which starts at $640,600 of taxable income for a single filer, leave a far larger gap; withholding against the tax due shows it.
Steps 2 and 3: two states
Iowa and Nebraska sit side by side, and both sell lottery tickets. A resident of one who buys a ticket in the other meets the nonresident rules of the state of purchase: Iowa taxes nonresidents on prizes of its lottery above $1,000, and Nebraska taxes nonresidents on its lottery prizes too. The home state then taxes the prize as part of its resident's income and credits the tax paid to the other state, up to its own tax on that income (Iowa through IA 130 (out-of-state tax credit), Nebraska through Nebraska Schedule II (Form 1040N line 19)). The result is close to the higher of the two state taxes, not the sum. Tickets bought in another state covers every pair.
Step 4: the city
Most cities do not tax a lottery prize. The exceptions built into these calculators are New York City and Yonkers, which tax their residents through the New York State return, and the counties of Maryland, which tax residents on Maryland income. The Ohio and Michigan city taxes and Indiana county taxes are not applied, because the official pages read do not say how they treat prizes.
Prizes paid in goods
A car, a trip or a house won in a lottery or a raffle is taxed at its fair market value, like cash. A $45,000 car won by the single Iowan adds $9,250 of federal tax and $1,710 of Iowa tax to the year, money that the car does not provide. When the value, minus the price of the ticket, exceeds $5,000, the payer must account for withholding as well, which often means the winner pays it before taking the prize (W-2G instructions, noncash payments).
Winners who are not US residents
A foreign visitor who wins a US lottery prize has 30 % withheld rather than 24 %, files Form 1040-NR, and generally cannot deduct gambling losses unless resident in Canada; a tax treaty can change the rate (IRS Topic 419). Mega Millions tickets are sold only in the United States, but a buyer need not be a resident or citizen to win.
When the tax is due
The tax on a prize belongs to the year it is paid, not the year of the drawing. A ticket drawn in late December and claimed in January is income of the new year. The IRS notes that winners may need to pay estimated tax on the additional income (IRS Topic 419), since the withholding rarely covers the full bill on a large prize. The state follows the same calendar, so the Iowa winner of the summary plans two payments, federal and state, for the quarter of the claim.
Losses and the 2026 rule
From 2026, losing tickets reduce taxable income only if you itemize, only up to your winnings and only at 90 % of their amount (Public Law 119-21, section 70114). The 90 % rule details the change. This page describes rules; it is not tax advice. Lottery revenue is built on the losses of players; if those have become a problem, call 1-800-MY-RESET.