Your Guide to US Lottery Taxes
You’ve played the US lotto in Australia and you’ve won! Or, maybe you haven’t won yet, but you want to know what would happen in the fortunate “if” case. Many lottery players have questions referring to US lottery taxes. “How much tax is there on US lottery winnings”, “How do US lottery taxes for foreigners compare to those for residents?”, “What are the taxes on US Powerball prizes?”, or “Do I have to pay a lottery tax in Australia when I win a US lotto jackpot playing the American lotteries from Australia online?”. If you are dealing with this kind of questions yourself, you are in the right place!
What Happens When You Win an American Lottery?
Have you won playing the US Mega Millions in Australia? Congragulations! The IRS requires lottery agencies to withhold 24% of all winnings over $5,000 for federal taxes.
If your winnings move you into a higher tax bracket, you’ll need to pay the difference between the amount withheld and your total tax liability. The amount withheld from your prize depends on the state where your ticket was purchased and the prize size. For non-U.S. residents, lottery prizes over $599.99 are subject to a withholding rate of 30%–38%, plus any applicable state income taxes. In certain states, the federal tax rate for non-resident aliens may be even higher.
Lump Sum vs Annuity - The Differences in Tax Payments
Lottery winners are offered two options: the cash payout (also known as lump sum) or an annuity jackpot. If a winner chooses the cash payout, the state lottery gives him or her the jackpot’s “cash value”, and the federal income taxes are taken out immediately. That means the recipient would pay the income tax on that amount up front.
If a winner picks the annuity jackpot, the state lottery invests the cash in various government securities. The winner is then given 30 payouts over 29 years, plus any interest earned. As per American tax laws, the first installment is charged at the tax rate of the time of the win. Then, the amounts of all future payouts depend on the tax bills from the time when the money is cashed in.
Taxes on Lottery Winnings By US State
As we have mentioned above, American lottery taxes vary from one state to another. Say you've won the US Powerball in Australia jackpot, which has an estimated value of $40 million. The cash value for this prize is $23.4 million.
After deduction of federal taxes, you are left with an amount of $17 million. If your ticket was purchased in Oregon, you will scoop $15.4 million as a lump sum, after deduction of the 8% state tax. If your ticket were purchased in New Jersey, for example, you would get $15.9 million as a lump sum, after deduction of the 6% state tax. If your ticket were purchased in New York, you would be entitled to $15.1 million as a lump sum, after deduction of the 8.82% state tax. Please see below a list of the American State tax quotas applied for the minimum jackpot in the US Powerball. Check out or guide on how to play US Powerball from Australia.
| State Name |
State Tax |
| Arizona |
5% for residents
6% for non-residents |
| Arkansas |
7% |
| California |
No tax |
| Colorado |
4% |
| Connecticut |
6.99% |
| Delaware |
No tax |
| Florida |
No tax |
| Georgia |
6% |
| Idaho |
7.4% |
| Illinois |
3.75% |
| Indiana |
3.4% |
| Iowa |
5% |
| Kansas |
5% |
| Kentucky |
6% |
| Louisiana |
5% |
| Maine |
5% |
| Maryland |
8.75% for residents
8% for non-residents |
| Massachusetts |
5% |
| Michigan |
4.25% |
| Minnesota |
4% |
| Missouri |
4% |
| Montana |
5% |
| Nebraska |
5% |
| New Hampshire |
No tax |
| New Jersey |
6% |
| New Mexico |
6% |
| New York |
8.82% |
| North Carolina |
5.75% |
| North Dakota |
2.9% |
| Ohio |
4% |
| Oklahoma |
4% |
| Oregon |
8% |
| Pennsylvania |
3.07% |
| Puerto Rico |
No tax |
| Rhode Island |
5.99% |
| South Carolina |
7% |
| South Dakota |
No tax |
| Tennessee |
No tax |
| Texas |
No tax |
| Vermont |
6% |
| Virginia |
4% |
| Washington |
No tax |
| Washington, D.C. |
8.5% |
| West Virginia |
6.5% |
| Wisconsin |
7.75% |
| Wyoming |
No tax |
What Taxes Do Australians Have to Pay for American Lottery Prizes?
If Australians win prizes in American lotteries, then they have to pay taxes as per US lottery tax laws. As described above, they have to pay a federal tax and a state tax on their winnings. Additionally, they have to abide by Australian tax laws.
Fortunately, lottery winnings are non-taxable in Australia, which means that once they pay their dues to the US authorities, the entire remaining amount of the lottery prize is theirs to keep.
PLEASE NOTE: this article and any tax-related information on theLotter Australia is provided for information purposes only. The information is not intended to be and does not constitute financial advice or any other advice, is general in nature and not specific to you. When you win a large lottery prize, we encourage you to seek the advice of a qualified and registered tax accountant or a lawyer specialized in taxation.