Lottery Taxes


Lottery is a game where people draw numbers to win prizes. The casting of lots has a long history in human history, but using lotteries for material gain is relatively new. Super-sized jackpots drive lottery sales, and prize money is advertised in ways that generate public interest.

But promoting a lottery sends a mixed message: It promotes gambling, and it may have negative consequences for poor people and problem gamblers.


Lotteries are an ancient pastime, with a rich history dating back to the Roman Empire and even biblical times. They were used in the 15th century to raise funds for town fortifications and other projects, and are a feature of European culture even today.

In America, the lottery dates back to the early colonies. Benjamin Franklin ran a lottery to raise money for cannons to protect Philadelphia during the American Revolution, and other colonists promoted private lotteries as well.

Those who promote state lotteries argue that they are a painless form of taxation, whereby players voluntarily spend their money for the good of the community. However, as Cohen notes, lottery revenues typically rise quickly but then plateau, leading to a need for new games to maintain growth.


Lottery formats are the rules that govern how a lottery game is played. These include the prize, how many winners are allowed, and how the prizes are awarded. The prize can be a fixed amount of cash or goods, or it can be a percentage of the total receipts.

Lotteries that feature jackpots in the millions or tens of million dollars earn tremendous publicity and have become part of popular culture. They also generate large ticket sales and a good amount of free advertising on news sites and television.

Traditional lotteries have been tested over long periods of time and are considered low-risk choices for individual lottery commissions. Exotic games, on the other hand, have a higher risk of advantage play, as players may be able to identify a previously unidentified strategy that will give them an edge over other players.

Odds of winning

While many people buy lottery tickets, few actually win the jackpot. The odds of winning the Powerball are one in 300 million. But there are ways to tip those odds slightly in your favor.

For example, you have a much higher chance of getting a royal flush (a 10 or jack, queen, king, and ace) in poker than you do of winning the lottery. But this doesn’t mean you should give up hope.

Lotteries are a massive business, with sales of $191 billion in 2021. But critics argue that they impose a disproportionate burden on poor families, and that they don’t boost state budgets. Moreover, people who purchase lottery tickets instead of saving for retirement or college tuition pay more in taxes than they receive in benefits.

Taxes on winnings

The federal government taxes all prize money, including lottery winnings, as ordinary income, and most states do the same. These taxes come from a state’s general fund, which is earmarked for specific programs like education, infrastructure and health care. These taxes also help fund national lotteries and church raffles. Typically, the tax rate is a state’s top marginal income tax rate. Winners can choose to take their prize in a lump sum or as a series of annuity payments.

The first thing to know about taxes on winnings is that the IRS will withhold up to 25% of your prize money before you see a single dollar. You’ll also have to pay state and local taxes. The top federal tax bracket is 37%, but remember that the tax rates are progressive.


Once state lotteries have been established, debate and criticism shift from whether a lottery should be adopted to specific features of its operations. These include alleged addiction to gambling and regressive impacts on lower-income groups. Critics also argue that the state faces an inherent conflict between its desire to increase revenues and its duty to protect public welfare.

A key to the success of Lottery is that it appeals to a broad group of specific constituencies, including convenience store operators (who are frequent lottery vendors); suppliers of equipment and services (whose heavy contributions to state political campaigns are often reported); teachers (in states where lotteries raise funds for education); and state legislators (who quickly become accustomed to additional revenue). As Lottery revenues expand, however, competition among these groups increases. This has prompted lotteries to introduce new games and more sophisticated advertising.