10 American States Adjust Their Tax Rates for Lottery Winners

States in the U.S. have released new income tax rates for their residents that adjust their taxes on lottery winnings. Yet, lottery winners in nine states will pay less tax this year compared to 2022.

Michael Sweeney, Massachusetts State Lottery Commission Executive Director, disclosed that the state has raised its lottery tax rate for wins exceeding $1 million this year. Nevertheless, 10 states have already changed their effective lottery winnings’ tax rates for 2023 including Arizona, Idaho, Arkansas, Iowa, Indiana, Massachusetts, Kentucky, Nebraska, North Carolina and Missouri. Surprisingly, Massachusetts is the only state that has increased its lottery tax while the other states have reduced their rates.

Iowa made the largest lottery tax cut from 8.53 percent to 6 percent. The ten aforementioned states and others in the country categorize lottery winnings as personal income when taxing them.

The New State Lottery Tax Cuts

  1. Arizona;4.5% to 2.5%
  2. Arkansas;5.5% to4.9%
  3. Idaho;6% to 5.8%
  4. Nebraska;6.84% to 6.64%
  5. North Carolina;4.99% to 4.75%
  6. Kentucky;5% to 4.5%
  7. Missouri ;5.3% to 4.95%
  8. Indiana;3.23% to 3.15%

Massachusetts increased the lottery tax on big winners through a ballot referendum that its citizens supported in the 2022 November election. Its constitutional amendment is based on the 4 percent tax that earners of an income exceeding $1 million report. So, it takes the state’s effective lottery tax rate for such players to 9 percent since it imposes a 5 percent individual income tax on the highest income earners.

Which States Are Ideal for Playing a Jackpot?

Gaming experts forecast that tonight’s Mega Millions jackpot will be worth $940 million. Typically, any players can get excited after winning such a payout.

It is ideal to hit it in one of the nine states which don’t categorize lottery winnings as personal income. Lottery winners in California, Florida, Delaware, South Dakota, New Hampshire, Wyoming, Texas, Tennessee and Washington don’t pay tax. Thus, a huge payout like the Mega Millions jackpot is equivalent to a sizable margin.

For instance, if a gambler wins tonight’s Mega Millions jackpot and selects a $483.5 million one-time cash payout, the federal government will charge them a 37 percent tax hence reducing their prize to almost $179 million. $304.6 million would be awarded to the jackpot winner in any of the other nine states which don’t impose additional tax on the prize.

Even so, Maryland has an 8.95 percent tax on lottery winnings. Therefore, the player’s payout would further reduce by $43 million for a $261 million net distribution.

Lotteries Are a Huge Business

American players spend $80 billion annually on lottery tickets according to a study that LendingTree conducted in December 2022. The eastern side of the Mississippi River has the leading 18 states in lottery expenditure records the largest percentage of the nationwide spending.

Massachusetts had the highest lottery games per capita spending as its residents spent $805 in 2020 on lottery games on average. Its per capita lottery spending almost doubled that of New York which stood at $456 per person. The gaming study revealed that Massachusetts has a high per capita income in the United States since its residents’ median household income in 2020 was $84,385, 30 percent more than the country’s $65,000 average household income.


A sports enthusiast, Ryan helps cover sports betting news from around the country, highlighting some of the more interesting events going on in the USA.