24% withheld, 37% owed: the lottery tax gap explained
Every year, some lottery winners are surprised by a large tax bill months after they claimed their prize. The reason is simple: the amount taken out when you claim is not the amount you owe. This guide explains the difference and how to plan for it.
What is withheld when you claim
When you claim a lottery prize of more than $5,000, the lottery must withhold federal income tax at a flat 24% and send it to the IRS for you. You receive Form W-2G showing the prize and the amount withheld. If you do not give the lottery your Social Security number, the withholding rate can be higher, and nonresident aliens generally have 30% withheld.
Most states that tax lottery winnings also withhold state tax at claim time. The state rate withheld is not always the same as the rate you will finally owe.
What you actually owe
Lottery winnings are added to your other income for the year and taxed using the normal federal brackets. In 2026 the top bracket is 37%, for taxable income above $640,600 for single filers and $768,700 for married couples filing jointly.
A jackpot puts almost every dollar of the prize in that top bracket. The first few hundred thousand dollars are taxed at lower rates, so your average rate on a very large prize ends up just under 37%. For a $10 million cash prize, the gap between what was withheld and what is owed is roughly 13% of the prize, about $1.3 million.
| Cash prize | Withheld (24%) | Owed (≈37%) | Still to pay |
|---|---|---|---|
| $1M | $240,000 | up to $370,000 | up to $130,000 |
| $10M | $2.4M | ≈ $3.7M | ≈ $1.3M |
| $100M | $24M | ≈ $37M | ≈ $13M |
Figures before state tax. A $1 million prize with little other income is taxed at a lower average rate, so the amount still to pay can be smaller.
Smaller prizes are different
For a prize of $20,000, $50,000 or even $200,000, your real rate depends on your other income. Someone with a modest salary who wins $50,000 may owe less than 24% on it, and get some of the withholding back as a refund. That is why the calculator on this site is most accurate for large prizes: it uses the top rate, which is what applies to jackpots.
Prizes of $5,000 or less have no federal tax withheld, but they are still taxable. You must report them on your return.
Paying the rest: estimated tax
The US tax system is pay-as-you-go. If a large amount of tax is not withheld, you may need to make an estimated tax payment for the quarter in which you won, using Form 1040-ES, to avoid an underpayment penalty. A tax professional can tell you whether you qualify for a safe harbor based on last year's tax, and how much to pay.
The simplest habit: the day your prize arrives, move the gap (about 13% of the prize for a jackpot, plus any state tax not withheld) into a separate account you do not touch.
Can gambling losses reduce the tax?
If you itemize deductions, gambling losses can reduce taxable gambling winnings, but only up to the amount of your winnings, and starting in 2026 federal law limits the deduction to 90% of losses. Losing tickets you kept records of count. For a jackpot winner the effect is tiny compared with the size of the prize.
State withholding
States follow their own rules. Some withhold at their top rate, some at a flat rate below it, and a few withhold nothing because they do not tax lottery winnings. Check your state in our state guides. New York City residents also have city tax withheld.
A simple plan for winners
- Before you claim, estimate your total tax with the calculator.
- After you receive the money, set aside the federal gap and any unpaid state tax.
- Ask a tax professional about an estimated tax payment for the quarter.
- Keep your W-2G and claim paperwork with your tax records.
Sources
- IRS Topic 419: Gambling income and losses
- IRS Instructions for Forms W-2G and 5754
- IRS Form 1040-ES, estimated tax
This guide is general information, not tax advice.