The state tax authority and the federal government will both want a piece of that jackpot, and the federal government will almost certainly want a larger portion than the state. However, regarding taxes and lottery winnings, some jurisdictions are far more generous than others. You will not get the whole amount if you accept the money in one sum rather than in installments. You may win a maximum amount equal to the whole amount of the jackpot mentioned. It is only available to those who agree to receive their wins in the form of an annuity, which means the money will be distributed to them over a period measured in years. In any case, a substantial portion of your lottery winnings could be subject to income taxation.

Federal Taxes

The good news is that lottery wins are not subject to FICA taxes since they are not considered earned income. This is because Social Security and Medicare taxes are only applied to money that has been earned. However, the Internal Revenue Service does mandate that lottery authorities deduct income taxes from winners' checks. After considering your ticket price, they are obligated to do so if you win $5,000 or more. The percentage of withholding is currently set at 25%. The Internal Revenue Service treats that twenty-five percent the same way it would if it were taken out of your paychecks in the form of taxes by your employer.

Submitting your tax return will provide you a refund if you don't wind up owing that much money to the government. If you wind up owing more than 25% in taxes, you will need to take a larger chunk out of those profits to pay the higher tax liability. This is something that may occur as a result of the higher tax bracket that you would enter if you won a significant jackpot. The highest marginal tax rate the federal government will apply in 2022 is 37%, which will be applied on earnings over $539,900 for single filers and $647,850 for married couples submitting a joint return.

Other Lottery Taxes

The tax burden may be particularly onerous in states that impose the highest maximum rates on income taxes. One such state is New York, which, particularly if you reside in New York City, will demand a portion of your wins for its budgetary needs.

In 2022, the highest rate for the state of New York's income tax will be 8.82%; however, residents of New York City will be subject to an additional municipal tax of 3.867%. This may amount to roughly 12.7% of your total profits in such cases. If you won $1 million, the amount of taxes you would owe would be close to $127,000. If you won $100 million, it would put you ahead by around $12.7 million.

The Worst States for Taxes

The highest rate of taxation on lottery winnings in New Jersey is 10.75%, making it the most expensive state to play the lottery as of 2021. With an 8.95% rate, the District of Columbia is now in the fourth position. At 8.82%, New York is fifth among the states. The following states complete the list of the top 10 states with the highest tax rates:

• Vermont: 8.75%
• Iowa: 8.53%
• Arizona: 8.00%
• 7.65 percent in Wisconsin
• Maine: 7.15%

Your financial burden will be proportional to the specific threshold at which these highest tax rates become applicable and the total amount you have been awarded. For instance, in Oregon, if you won more than $125,000, you would only be required to pay 9.9% in taxes, and you would only be required to pay this percentage on the part of your winnings that exceeded this figure. You'd pay 9% if you won $124,999 or less.

The Best states for Taxes

Living in one of the states without any income tax as of 2022, such as, Tennessee, or Wyoming, is your best hope for avoiding paying taxes on lottery winnings. Even though neither Alaska nor Nevada imposes an income tax, none of these states participate in national lotteries.

Some Small Tax Perks

If you itemize your deductions and spend more money attempting to win than you end up winning, you may be able to deduct some of your gambling losses. However, the amount you may deduct is limited to the number of your wins. To put it another way, you wouldn't be required to pay taxes on the money you won, but you wouldn't be able to deduct the remainder of your losses from any of your other sources of income.