I Won the Lottery! How Hefty Are Taxes on My Winnings Going to Be?

Javier Simon, CEPF®   Sun, March 26, 2023

Before you see a dollar of lottery winnings, the IRS will take 25%. Up to an additional 13% could be withheld in state and local taxes, depending on where you live. Still, you'll probably owe more when taxes are due, since the top federal tax rate is 37%. So a good first step a lottery winner could take is to hire a financial advisor who can help with tax and investment strategies. Read on for more about how taxes on lottery winnings work and what the smart money would do.

How Are Lottery Winnings Taxed?

The IRS considers net lottery winnings ordinary taxable income. So after subtracting the cost of your ticket, you will owe federal income taxes on what remains. How much exactly depends on your tax bracket, which is based on your winnings and other sources of income, so the IRS withholds only 25%. You'll owe the rest when you file your taxes in April.

You can find your bracket on the table below:

Federal Income Tax Bracket for 2022 Single Married Filing Jointly Married Filing Separately Head of Household 10% $0 – $10,275 $0 – $20,550 $0 – $10,275 $0 – $14,650

12% $10,276 – $41,775 $20,551 – $83,550 $10,276 – $41,775 $14,651 – $55,900

22% $41,776 – $89,075 $83,551 – $178,150 $41,776 – $89,075 $55,901 – $89,050

24% $89,076 – $170,050 $178,151 – $340,100 $89,076 – $170,050 $89,051 – $170,050

32% $170,051 – $215,950 $340,101 – $431,900 $170,051 – $215,950 $170,051 – $215,950

35% $215,951 – $539,900 $431,901 – $647,850 $215,951 – $539,900 $215,951 – $539,900

37% $539,901+ $647,851+ $539,901+ $539,901+

Here are the tax brackets for tax year 2023 (filed in April 2024)

Federal Income Tax Brackets for 2023  Rate Single Married Filing Jointly Married Filing Separately Head of Household 10% $0 – $11,000 $0 – $22,000 $0 – $11,000 $0 – $15,700

12% $11,001 – $44,725 $22,001 – $89,450 $11,001 – $44,725 $15,701 – $59,850

22% $44,726 – $95,375 $89,451 – $190,750 $44,726 – $95,375 $59,851 – $95,350

24% $95,376- $182,100 $190,751 – $364,200 $95,376- $182,100 $95,351 – $182,100

32% $182,101 – $231,250 $364,201 – $462,500 $182,101 – $231,250 $182,101 – $231,250

35% $231,251 – $578,125 $462,501 – $693,750 $231,251 – $346,875 $231,251 – $578,100

37% $578,126+ $693,751+ $346,876+ $578,101+

On the bright side, if you're in the top bracket, you don't actually pay 37% on all your income. Federal income tax is progressive. As a single filer in 2022, and after deductions, you pay:

10% on the first $10,275 you earn

12% on the next $31,500

22% on the next $47,300

24% on the next $80,975

32% on the next $45,900

35% on the next $323,950

37% on any amount more than $539,900

An Example

Say you're a single filer making $45,000 a year and in 2022 you won $100,000 in the lottery. That raises your total ordinary taxable income to $145,000, with $25,000 withheld from your winnings for federal taxes. As you can see from the table above, your winning lottery ticket bumped you up from the 22% marginal tax rate to the 24% rate (assuming you are a single filer and, for simplicity's sake here, had no deductions).

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