Scratch-off winnings tax: small prizes, real income
Instant tickets pay most of their prizes at the counter, without forms. The tax rules still apply from the first dollar; here is where the paperwork starts.
- W-2G from
- $2,000
- And at least
- 300 × the ticket
- Federal withholding
- 24 % over $5,000
No Form W-2G for this win
none
2026 threshold $2,000 and at least 300 times the wager. Reported or not, the win is taxable income.
| Amount counted for the form | $2,490 |
| Times the wager | 250× |
| Federal tax withheld by the payer | $0 |
| Federal tax on this win (estimate) | $299 |
| North Carolina tax on this win | $99 |
Compiled by Radif Partners · How we calculate · brackets, state rates and lottery rules read on official sites · estimate, not tax advice
Every scratch-off prize is taxable income, from the first dollar, whether or not the lottery reports it. What changes with the amount is the paperwork. For prizes paid in 2026, the lottery issues a Form W-2G when the prize reaches $2,000 and is at least 300 times the price of the ticket, a threshold raised for 2026 by the 2025 tax law. It withholds 24 % for the IRS when the prize minus the ticket exceeds $5,000. Many state lotteries withhold their own tax from lower amounts: North Carolina from $600, at 3.99 %. A North Carolina resident who wins $2,500 on a $10 ticket gets a W-2G, has nothing withheld federally, and owes about $300 of federal and $100 of state tax with the return. Losing tickets reduce the tax only for those who itemize, and from 2026 only at 90 % of their amount.
Does your instant prize get a W-2G?
No Form W-2G for this win
none
| Amount counted for the form | $2,490 |
| Times the wager | 250× |
| Federal tax withheld by the payer | $0 |
| Federal tax on this win (estimate) | $299 |
When the lottery reports the prize
Lotteries, including state-conducted lotteries, file a Form W-2G for a winner when the prize meets the reporting threshold and is at least 300 times the amount of the wager (Instructions for Forms W-2G and 5754, Rev. January 2026). For payments made in 2026, the threshold is $2,000, an increase listed under "What's New" in those instructions. The wager is the price of the ticket, so the 300-times test is nearly always met by an instant prize large enough to reach the threshold.
| Prize | Ticket | Form W-2G | Federal withholding |
|---|---|---|---|
| $1,000 | $10 | no | $0 |
| $2,500 | $5 | yes | $0 |
| $2,500 | $10 | no | $0 |
| $10,000 | $20 | yes | $2,395 |
| $50,000 | $30 | yes | $11,993 |
| $1,000,000 | $30 | yes | $239,993 |
A prize of exactly $2,000 on a $5 ticket is reported (no in the engine), because the threshold is "meeting or exceeding". Withholding is a different test: it applies only when the prize minus the ticket is more than $5,000, and then at 24 % of the prize. Between the two thresholds, the winner receives the full prize and a W-2G, and pays the tax later.
Below the threshold, still income
A $500 instant prize paid in cash at the store comes with no form at all. It is still gambling income, to be reported on the return with any other winnings of the year (IRS Topic 419, Gambling income and losses). The IRS does not see it unless the winner reports it; the obligation does not depend on the form. Players who cash many small prizes in a year often owe tax on a total they never added up.
State withholding starts lower in some states
State lotteries apply their own withholding thresholds. North Carolina withholds 3.99 % on prizes from $600; South Carolina from $500 at 5.21 %; Connecticut from $600; Missouri from $600. A South Carolina resident who wins $10,000 has $2,400 withheld federally and $521 by the state, against a federal tax of $1,550 and a state tax of $521. The withholding table lists every state lottery.
A $50,000 ticket
Large instant prizes are paid by the lottery office, with both withholdings. On $50,000, a North Carolina resident with $60,000 of other income has $12,000 withheld for the IRS, which here is close to the federal tax actually due, $10,350, because the prize sits in the 22 % and 24 % brackets of Rev. Proc. 2025-32. The state tax is $1,995. Some instant games pay their top prize over several years; each yearly payment is then income of its year.
Second-chance drawings and non-cash prizes
Many instant games send losing tickets into second-chance drawings for cash, trips or cars. A prize won that way is gambling winnings like any other, and a prize paid in goods is taxed at its fair market value; the W-2G instructions cover non-cash payments and the way withholding is computed on them (W-2G instructions, noncash payments). A winner of a car worth more than the withholding threshold may have to pay the withholding to the lottery before taking delivery. The value counts toward the same W-2G threshold and the same return as a cash prize, so a free ticket that wins a vehicle can create a real tax bill.
Losing scratch offs: deductible only at 90 %
Losing tickets are wagering losses. From 2026 they reduce taxable income only if the player itemizes deductions, only up to the winnings, and only at 90 % of their amount (Public Law 119-21, section 70114). A North Carolina player who won $2,500 and spent $1,500 on losing tickets, with no other itemized deductions, takes the standard deduction and gets nothing for the losses: federal tax $300. With $20,000 of other itemized deductions, $1,350 of losses count and the federal tax drops to $138. Losses must be documented: keep the losing tickets or a log with dates and amounts. The 90 % rule explains the change in detail.
Instant tickets are designed to be bought again with the prize. If that has become a habit that costs more than it should, help is free and confidential at 1-800-MY-RESET.