Tax Implications of Winning the Lottery


Lotteries are games of chance in which people pay a consideration for the chance to win a prize. These prizes may be money, goods, or property. Lotteries have been used in various ways throughout history, including as a way to distribute slaves and to finance public works.

As a result, lotteries are largely responsive to economic fluctuations. As Cohen explains, lottery sales increase as incomes fall and unemployment rates rise.


Lotteries have a long history in both Europe and the United States. They were used in the fifteenth century to raise money for town fortifications and charity, and later became a popular source of revenue for schools and roads. The lottery also helped fund the creation of Harvard, Yale, Columbia, and other prominent American institutions. Despite its controversial history, the lottery has proven to be a valuable tool for state governments in times of financial crisis.

Its advocates argue that it allows them to spend more without raising taxes. It is a win-win situation for both voters and politicians. In the wake of the post-World War II boom, states needed to expand their social safety nets but did not want to impose onerous new taxes on voters. The lottery seemed like a perfect solution.

Odds of winning

Despite the fact that the lottery contributes billions to the economy each year, winning is nearly impossible. The odds of winning Powerball are 1 in 292 million, which is about the combined population of the states where the lottery is sold. That’s a lot smaller than the odds of being struck by lightning, getting a shark bite, or being stung by hornets, wasps, and bees.

In addition, the advertised jackpots are based on annuity payments that winners receive over decades. So, even though your chances of winning increase by buying more tickets, the change is mathematically insignificant. Lottery players employ a variety of strategies to improve their odds, from playing frequently to using “lucky” numbers based on their birthdays. However, these tactics don’t work.

Taxes on winnings

Like finding cash in a coat or pair of pants, winning the lottery can feel great. But it is important to remember that winnings are taxable. The federal government taxes prizes, awards, sweepstakes, and lottery winnings as ordinary income. The amount withheld depends on your tax bracket.

For example, a large jackpot may bump the winner into a higher tax bracket, which could be as high as 37%. This is why many winners choose to take their prize in annual or monthly payments. This way, they can avoid being hit with a big tax bill in the first year of winning. However, it is important to work with a financial advisor to determine which option is best for you. They can help you decide which investments to make and how much to withhold.


The Commission shall establish a fidelity fund to cover any losses the Commission may experience due to misfeasance or malfeasance by lottery retailers. The fund shall be funded through a fee of one dollar per lottery retail sales location. These monies shall be invested by the commission according to state investment practices.

The Director of the Lottery Office must conduct a background investigation on all applicants and licensees. This includes a criminal record check, an investigative search of public records, and an interview with the person. The results of these investigations must be forwarded to the Director in a confidential manner.

The Director must also perform a demographic analysis of lottery players. This study must include information on income, age, sex, education, and frequency of participation.


While the prizes are substantial, winning a lottery prize is not free. The lottery recommends that winners seek financial advice to understand any tax or other implications. Generally, a winner will have the option to receive a lump sum payment or annuity payments over many decades. The choice will make a difference in how much the winner pockets, as taxes on annuity payments are higher than for one-time cash awards.

Sponsors hold lotteries to meet marketing goals, just as they might advertise on television or on billboards. They know that super-sized jackpots attract attention and increase ticket sales. They also know that many people are willing to take a chance at the promise of instant riches. This is not surprising, as humans have an inextricable impulse to gamble.