Kentucky lottery taxes: 3.5% in 2026
Rate checked on November 4, 2026 against the sources listed at the end of this page.
Kentucky lowered its flat income tax from 4% to 3.5% for tax year 2026 (House Bill 1, 2025). Kentucky law (KRS 154A.110) makes lottery prizes subject to state income tax, so a jackpot is taxed at that 3.5% rate.
If you find a Kentucky Department of Revenue page that still says the rate is 4%, it is out of date: the 2026 withholding guide, Form K-4 and withholding formula all use 3.5%.
Take-home pay on a lump-sum prize in Kentucky
The table applies the top federal rate of 37% plus 3.5% Kentucky 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 | −$35,000 | $595,000 |
| $10.00M | −$3.70M | −$350,000 | $5.95M |
| $100.00M | −$37.00M | −$3.50M | $59.50M |
| $500.00M | −$185.00M | −$17.50M | $297.50M |
| $1.00B | −$370.00M | −$35.00M | $595.00M |
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.
What is withheld when you claim
A Kentucky regulation (103 KAR 18:070) sets withholding on gambling winnings at the maximum state rate. For 2026 that is 3.5% of the proceeds, meaning the winnings minus the cost of the ticket, on lottery winnings over $5,000. Because the state rate is flat, the 3.5% withheld is normally the whole Kentucky tax on a big prize. The federal balance (up to 37% owed, 24% withheld) is the larger amount to plan for.
Nonresidents: check with the state
Kentucky withholding applies to winnings subject to federal withholding, but we could not confirm on an official page how Kentucky taxes a Kentucky Lottery prize won by a resident of another state. If you live in Ohio, Indiana, Tennessee or another neighbor, check with the Kentucky Lottery or the Department of Revenue. Tennessee does not tax lottery prizes at home; see our Tennessee guide and ticket state vs home state.
Local taxes
Many Kentucky cities and counties charge occupational license taxes. We could not confirm on an official page whether any of them reach a lottery prize, so ask your local tax office. They are not included in our calculator.
Will the rate keep falling?
Bills in the 2026 legislative session proposed further changes from 2027. We have not confirmed whether any passed, so check the rate for the year you are paid if you take the annuity.
Common questions
What is Kentucky's tax rate on lottery winnings in 2026?
3.5%, the flat income tax rate for tax year 2026.
How much does Kentucky withhold from a lottery prize?
3.5% of the proceeds (winnings minus the bet) on lottery winnings over $5,000.
How much of a $10 million cash prize would I keep in Kentucky?
About $5.95 million after 37% federal and 3.5% state tax.
Sources
- IRS Topic 419: Gambling income and losses
- IRS Instructions for Forms W-2G and 5754
- Kentucky DOR: Employer payroll withholding (3.5% for tax year 2026)
- Kentucky DOR: 42A003 withholding guide, March 2026 (gambling winnings 3.5%, PDF)
Calculate for Kentucky: Powerball · Mega Millions · any prize amount