Taxes on Lottery Winnings
A lottery is a gambling game that requires you to pay for a chance to win a prize. This could be money, jewelry, or something else of value.
The word lottery is derived from the Dutch word lotinge, meaning “drawing.” This citation appears in the Oxford English Dictionary.
In a lottery, you pay to purchase a ticket with a set of numbers on it that will be drawn randomly by the system. If you have enough of the numbers on your ticket to match those drawn, you win a prize.
Depending on the rules, you may receive your winnings as a lump sum or over several years in the form of an annuity. Whether you choose to take the lump sum or receive it over time, you’ll still have to pay federal and state taxes on your winnings.
If you win a $10 million lottery, you’ll have to pay 24 percent in taxes (assuming you choose to receive the prize as a lump sum), plus state and local taxes. After all these fees, you’d be left with about $2.5 million.
In the United States, state governments often use the money generated by their lotteries to support government services. But lottery revenues aren’t as transparent as other forms of taxation.
Throughout history, lotteries have been used to raise money for governments, churches, colleges, and other public projects. For example, in colonial America, Benjamin Franklin organized a lottery to help finance his city’s defense. George Washington managed a lottery to raise funds for his Mountain Road project and was a manager in a lottery to sell land and slaves.