California lottery taxes: federal tax only (with one catch)
California has one of the highest income taxes in the United States, which surprises a lot of winners when they learn that California Lottery prizes are exempt from state tax. If you buy your Powerball or Mega Millions ticket in California, the only tax you pay on the prize is federal.
There is a catch: the exemption covers the California Lottery. A California resident who wins with a ticket bought in Arizona, Oregon or Nevada's neighbors pays California tax on that prize.
Calculate a California jackpot
Take-home pay on a lump-sum prize in California
The table applies the top federal rate of 37% plus no state tax. Amounts are the cash (lump-sum) value you receive, not the advertised annuity jackpot.
| Cash prize | Federal (37%) | State | You keep |
|---|---|---|---|
| $1.00M | −$370,000 | $0 | $630,000 |
| $10.00M | −$3.70M | $0 | $6.30M |
| $100.00M | −$37.00M | $0 | $63.00M |
| $500.00M | −$185.00M | $0 | $315.00M |
| $1.00B | −$370.00M | $0 | $630.00M |
Federal figure is the total owed at the top bracket. At claim time only 24% is withheld; the rest is due when you file. Smaller prizes can fall into lower brackets, so the real federal bill may be less.
Why California exempts its own lottery
When voters created the California State Lottery, the law exempted its prizes from state personal income tax. Powerball and Mega Millions tickets sold by the California Lottery are covered, so a jackpot claimed in California is taxed only by the IRS.
What is withheld when you claim
For prizes over $5,000 the lottery withholds federal tax at 24%. No state tax is withheld. On a jackpot you will owe more federal tax when you file: the top rate is 37%, so plan to set aside the 13-point gap.
When a Californian does pay state tax
- Ticket bought in another state. California taxes its residents on worldwide income, and the exemption only covers the California Lottery.
- Interest and investment income. Once you invest your winnings, the interest, dividends and gains are taxed by California like any other investment income.
- Selling annuity payments. Money from selling future lottery payments to a buyer can be treated differently from the prize itself. Get advice before you sell.
Nonresidents who win in California
Because the exemption is on the prize, not the person, out-of-state winners also pay no California tax. That is why lottery stores on the California side of the Nevada border are famous for long lines when the jackpot climbs. Your home state may still tax the prize.
Annuity or lump sum in California
With no state tax, the lump sum versus annuity choice in California is purely a federal question plus your own investing plans. Use the calculator to compare both.
Common questions
Do you pay state tax on lottery winnings in California?
Not on California Lottery prizes. California exempts them from state income tax, so you pay federal tax only.
I live in California and won with an Arizona ticket. Do I owe California tax?
Yes. The exemption only covers the California Lottery. California taxes residents on prizes from other states, usually with a credit for tax paid to the other state.
How much do I keep from a $10 million cash prize in California?
About $6.3 million if the whole prize is taxed at the top federal rate of 37%.