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State taxes will take a bite out of most lottery jackpots

October 7, 2023
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Photo by dylan nolte on Unsplash

There are nine states with no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

I mention this today because the lone winner of last night’s Mega Millions $361 million ($157.3 million one-time cash option) jackpot bought the slip in Texas. If that person lives here, he/she/they are in luck, since the millions only have to be shared with the Internal Revenue Service.

California, Washington special situations: The same goes for the other no-income-tax states, as well as California.

Yep, although California is infamous for many and varied taxes and high rates, the Golden State shines when it comes to lottery winnings. Lottery jackpots are exempt from state tax.

And while there’s no state income tax in Washington, if winners there invest jackpot cash, they eventually could face the Evergreen State’s 7 percent capital gains tax on profits from certain capital asset sales.

But what about winners in other states? Glad you asked.

State tax cut of lottery winnings: This weekend’s Saturday Shout Outs go to a couple of items that examine the state taxes that will be collected on lottery winnings in addition to Uncle Sam’s take.

Kelley R. Taylor tells us which states will take the biggest tax bite out of a lottery jackpot in her Kiplinger Personal Finance article the States With the Highest Powerball Taxes.

As for the other states, you can check out Powerball.net’s lottery tax calculator. Enter your total winnings and state, and voilà, you’ll see how much richer you’ve also made your state’s treasury.

Of course, these state tax items are just guidelines. Taxes on anything are complex, so, as I note in my tax tip on moves lottery winners should make, consult a financial expert as soon as you realize you’re a new lottery millionaire.

Finally, I must mention that residents of no-income-tax Alaska and Nevada won’t owe tax on lottery winnings, they had to spend some cash to buy them. They had to travel beyond their borders to buy the tickets since Powerball and Mega Millions aren’t available in those two states, or in Alabama, Hawai'i, and Utah either.

The reasons behind the lottery lockouts in those locales is this weekend’s final Saturday Shout Out. Addy Bink’s piece for Nexstar Media Wire explains why you can’t buy Mega Millions or Powerball tickets in 5 states.

Regardless of where you live, if you (like me) decide to waste a few dollars on the lottery dream, I and the IRS and, in most cases, your state tax collector, wish you good luck!

You also might find these items of interest:

 

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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