11 USA locations where lottery winnings are tax-free
/
While lottery winnings are essentially free from state and local income taxes in these places, there are still federal taxes to pay.
Here's an overview of the federal tax implications for lottery winnings in various states:
California: Lottery winnings are exempt from state and local income taxes. The federal tax withholding rate on lottery winnings is 24% for U.S. citizens and resident aliens. If you are not a U.S. citizen or resident alien, the withholding rate may be higher, typically 30%.
Delaware
Delaware does not have a state tax on lottery winnings, but federal taxes apply. For U.S. citizens or residents, the federal tax withholding is 24% on winnings over $5,000. For non-U.S. citizens or non-residents, it's 30%.
Florida
There's no state tax on lottery winnings in Florida. However, the federal government taxes lottery winnings as ordinary income. Winnings over $5,000 are taxed at a federal rate of 24%.
New Hampshire
New Hampshire does not tax lottery winnings at the state level. The federal tax withheld for U.S. citizens or residents is 24% for winnings over $5,000. For non-U.S. citizens or non-residents, the federal tax is 30%.
South Dakota
While South Dakota has no state income tax on lottery winnings, federal taxes still apply. The IRS requires 24% withholding for prizes over $5,000.
Tennessee
Tennessee doesn't tax lottery winnings at the state level, but federal taxes are applicable. Winners are taxed 24% by the federal government for earnings over $5,000. Strategies like strategic gifting, using deductions, and investing in tax-advantaged accounts can help manage the tax impact.
Texas
Texas does not have a state income tax. Thus, lottery winnings are only subject to federal taxes. The federal tax rate on lottery winnings is based on the winner's total income and can be up to 37%.
Washington
Washington State does not have a personal income tax, so no state tax on lottery winnings. Federal taxes, however, are applicable, and the rate depends on the winner's total income, potentially reaching up to 37%.
Wyoming
Wyoming does not tax lottery winnings at the state level. Federal taxes are applied to lottery winnings, with the rate determined by the winner's total income, which can be as high as 37%.
Puerto Rico and the U.S. Virgin Islands
Both U.S. territories do not tax lottery winnings. Federal taxes, however, may still apply, and the rate depends on the winner's total income.
For all these locations, lottery winners should consult with a tax professional to understand the full extent of their tax obligations and explore strategies to manage their tax liabilities effectively.
