Winning a $1 million lottery prize typically results in the government taking roughly 30% to 45%+ of the total value in combined federal and state taxes. The IRS immediately withholds 24% for federal taxes, but because winnings are taxed as ordinary income, you will likely owe the top federal rate of 37%, plus state income taxes (up to 10.9% in some states, 0% in others).
State taxes on lottery winnings
There are also state taxes in most jurisdictions, which range from 2.9% in North Dakota to 10.9% in New York. But if you're lucky enough to live in California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming, you won't pay any state taxes on your winnings.
The winner takes home $628.5 million after federal tax. Then, depending on whether the winner's state taxes lottery winnings, he may have to add state taxes too. Most states have an income tax, from California's high 13.3% on down.
Bezos owns billions in Amazon stock. Instead of selling it and paying taxes, he takes out loans using the stock as collateral. Loans are not considered taxable income, so he can use that money tax-free.
You can't entirely avoid taxes on a bonus, but you can significantly lower the amount by contributing to tax-advantaged accounts (401(k), IRA, HSA), deferring the bonus to a year you expect to be in a lower tax bracket, or making charitable donations, thereby reducing your taxable income or increasing deductions at tax time.
While it might seem unnecessary, hiring an experienced lottery attorney is crucial in protecting your winnings and ensuring you can enjoy your newfound wealth for years to come. Remember, the cost of good legal advice is a small price compared to the potential costs of making mistakes with millions of dollars.
If the winner opts for installments, they could expect annual payments of roughly $50 million before taxes, or about $31.5 million per year if taxed at the 37% rate. And if they live in a state like New York, which taxes lottery winnings at 10.9%, they could owe even more.
Ten states allow lottery winners to remain anonymous for wins above a certain amount, ranging from $10,000 in Minnesota to $10 million in Virginia. In some states where there is no anonymity for individual winners, people can still claim prizes anonymously through private trusts.
Here are some steps to take to make the most of your lottery winnings.
Yes. If you are a nonresident alien and you win the lottery, hit it big at a casino, or win through sports betting in the U.S., your gambling winnings are subject to U.S. federal tax. In most cases, the IRS withholds 30% of your gross winnings immediately.
Key Takeaways. The federal gift tax is payable by the donor, not the recipient of the gift. You can give away up to $19,000 per person per year tax-free in 2025. You can gift up to $13.99 million as of 2025 if you combine the value of your gifts over $19,000 with the value of your estate.
“Gifts” can be made in cash or other assets – securities, closely held business interests, real estate, artworks, collectibles or any other type of property. So long as the total market value of your gifts does not exceed $19,000 per recipient in 2026, the transfers are entirely gift tax-free.
The IRS $600 rule refers to a change in reporting requirements for third-party payment apps (like Venmo, PayPal) for taxable income from goods and services, where platforms must send a Form 1099-K if you receive over $600 in a year, intended to capture gig economy/side hustle income, though delays and phased implementation have adjusted the timeline, with current rules for 2024 using a higher threshold ($5,000) before fully phasing to $600 for future years, but remember all taxable income, regardless of form, must always be reported.
In fact, the list of billionaires paying $0 in income tax reads like a who's-who of the world's most famous executives. Amazon CEO Jeff Bezos and Tesla CEO Elon Musk, for example, are the two wealthiest people in the world, according to the Forbes Billionaires' List.
Yes, Jeff Bezos famously paid himself a modest salary of around $80,000 per year at Amazon for about two decades, choosing equity over large paychecks to align with his founder's mindset and drive wealth through increased company value, not more salary. He felt his significant ownership stake provided ample incentive, and he was proud of this decision, which allowed him to avoid higher taxes while his stock value soared.
The biggest mistake a lottery winner can make is failing to immediately assemble a professional financial and legal team and acting impulsively, leading to rapid depletion of wealth through overspending, bad investments, tax issues, or succumbing to requests for money, often compounded by making the win too public. Rushing into big life decisions, quitting jobs too soon, and not accounting for significant tax implications are critical errors that can ruin a life-changing fortune quickly.
Understand that your name is still public and reportable. If you are concerned about people trying to contact you, consider changing your cell and home phone numbers or allowing your voicemail to pick up calls for a few days. An attorney can help protect you and your assets.