Taxes and Winning the Lottery


Lotteries are an arrangement where people pay money and receive prizes based on chance. They can be conducted by government, private businesses, or individuals. Some are even televised.

Many of those who play the lottery are poor and spend a large percentage of their income on tickets. They do this despite the fact that they know that winning is unlikely.


Lotteries have a long history, dating back to the Roman Empire and even the biblical Bible, where they are used for everything from selecting the next king of Israel to divining God’s will. The modern lottery draws its name from the Dutch word “lot,” meaning fate. Historically, lotteries were used to raise money for public works and charitable purposes.

In colonial-era America, they helped finance the first English settlements. By the 18th century, they were helping to fund everything from streets to churches and universities. Harvard, Yale and Princeton were all financed by lotteries. George Washington even sponsored a lottery to build a road across the mountains of Virginia.

Cohen says that over time, the lottery became a way for states to raise revenue without enraging their anti-tax electorate. Today, most state-run lotteries follow a similar pattern: legislate a monopoly for itself; begin with a small number of relatively simple games; and rely on a core group of regular players to drive growth.

Odds of winning

Buying lottery tickets can be tempting, but the odds of winning are low. Even if you play multiple games, your chances of hitting the jackpot are still very small. In addition, purchasing tickets can cost you thousands of dollars in foregone savings.

Although the chances of winning the lottery are astronomically small, some people do win. In fact, one study found that three winners split a prize of more than a billion dollars. But this figure doesn’t account for the fact that many lottery players handpick their numbers and choose sequences of numbers that mean something to them, such as birthdays or anniversaries. This can increase the likelihood of pot-splitting but does not significantly improve odds.

Winning the lottery is not for everyone, and the risk-to-reward ratio is not a good fit for most households. However, there are ways to make the odds a bit more favorable, including playing more frequently and choosing the right numbers.

Taxes on winnings

Winning the lottery is a life-changing event. However, it is important to understand the taxes associated with your winnings so that you can plan accordingly. It is a good idea to consult with an accountant and earmark at least part of your winnings to cover the tax bill.

In the United States, lottery winnings are considered taxable income and subject to federal and state taxes. The amount of the prize is added to your taxable income each year, and it is taxed at a rate based on your income bracket. Some winners choose to take a lump sum rather than annuity payment, which can reduce the amount of taxes they pay. It is also a good idea to consult with a financial planner or a tax expert.

Taxes on losing tickets

To keep track of your winnings and losses, you need to maintain a record of ticket purchase dates, receipts, wagers, canceled checks, credit card charges and losing tickets. You must also keep records of the amount of federal income tax withheld from each installment payment. The IRS considers lottery winnings to be ordinary taxable income and withholds 25% of your net cash prize.

Most lottery winners choose to receive their prize in annual installments. They usually do so for a variety of reasons, including the belief that their lifetime investment returns and inflation will be high. They may also worry that they could die before the final installment is paid, resulting in an estate tax liability. However, they can still deduct any gambling losses as an itemized deduction.


Many people have dreamed of winning the lottery, and if you have, it’s important to consider how your personal financial situation could change. Jumping a few tax brackets overnight can make all your decisions seem more complicated, and mistakes made now may affect you for years to come.

Another consideration is whether you want to keep working – for some, their profession gives meaning and purpose to their lives, so it’s not unreasonable to continue doing so as a lottery winner. Tucking away an emergency fund is also a good idea, as even carefully planned spending can still leave you vulnerable to unforeseen circumstances.

Keeping your winnings private is also vital. Keeping your name out of the media protects you from scammers and long-lost friends who are after your money.