The March 26 Mega Millions winning ticket for the $1.13 billion jackpot was sold in New Jersey. The amount had climbed recently with players across the country hoping to win. However, as you know, the Mega Millions winner will have to pay considerable federal taxes on that prize.
The IRS takes federal tax “off the top.” But the winner then pays additional federal income taxes based on the tax rate tied to their federal tax bracket, which will be high due to the multibillion-dollar payout. Depending on where they live, the winner may also pay state taxes. (The same is true for a Powerball winner.)
These 8 states don't tax lottery winnings
But if you live in certain states and win the Mega Millions lottery, you won’t have to pay that additional state tax, which means a lot of savings compared to someone who wins in a state that does tax Mega Millions winnings.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Here are 8 U.S. states that don't impose taxes on lottery winnings. However, it is important to note that these states are still required to withhold federal taxes from your prize.
Wyoming
Wyoming will not tax your Mega Millions prize and is one of 13 states that won’t tax retirement income.
And if that wasn’t enough good news for residents, Wyoming has no personal or corporate income taxes and no estate or inheritance taxes. It's also been ranked by Kiplinger as a low-tax state for middle-class families.
Washington
Washington doesn’t impose a personal income tax and so won’t tax lottery winnings, including your Mega Millions prize, at the state level. However, the state's Supreme Court recently upheld a capital gains tax that has caused some controversy.
Additionally, last year, gas prices in Washington surpassed those in California, making them the highest in the U.S. for a while.
Texas
Texas is another state that won’t tax your lottery winnings. That’s good news for the ticketholder who matched five white balls and the Megaplier for a $4 million prize last summer.
According to lottery officials, "Texas has had more multi-million second-tier [Mega Millions] prizes than any other jurisdiction."
Tennessee
Residents of Tennessee do not have to pay taxes on their Mega Millions winnings, since the state doesn't have an income tax. The Volunteer State does have a high state sales tax, however, at 7%. When combined with local sales tax, the rate can be as high as 9.75%.
South Dakota
If you win a lottery jackpot in South Dakota, you won't have to pay any state tax on your winnings because the state does not have a personal income tax.
However, it is worth noting that the state and local sales tax rate is relatively low, but sales tax is applied to groceries and clothing.
New Hampshire
In New Hampshire, you won't have to pay state tax on your lottery winnings because the state doesn't have an income or sales tax.
However, it is important to note that property taxes are relatively high in New Hampshire and the state is phasing out its tax on dividends and interest income.
Florida
Florida also does not tax lottery winnings, so your Mega Millions prize will only be subject to federal taxes. Florida is also one of nine states that don't have a personal income tax. (That is great news for the $1.58 billion Mega Millions winning ticket sold last summer in the Sunshine State.)
Additionally, a massive tax relief bill in Florida enables residents to enjoy tax-free purchases on several items with six sales tax holidays.
California
If you win the Mega Millions jackpot in California, you will be happy to know that there are no taxes on lottery winnings in the state.
However, California has a reputation for high taxes partly due to the expensive prices of certain goods. Additionally, the Golden State has one of the highest sales tax rates in the United States and residents regularly face high gas taxes.
Related
-
Is the EV Tax Credit Going Away? What You Need to KnowTax Credits There's a lot of chatter about the President-elect's plans to eliminate the electric vehicle tax credit. Here's what's happening.
-
Being Nimble Is Key to This Fidelity Bond Fund's OutperformanceThe Fidelity Total Bond ETF has done well over the long term as managers adjust to changing tides.
-
FSA Contribution Limits Are Higher for 2025FSA A flexible spending account allows you to build tax-free savings for certain medical expenses.
-
Florida Tax Deadline Extension: What You Need to KnowTax Relief The IRS extended federal tax return file time due to severe storms.
-
IRS: Here’s How to Recover Your Tax Records After a Natural DisasterTax Records Your tax documents can help you get federal relief faster, the IRS says.
-
Voters Approve New Veteran Property Tax ReliefTax Relief Thanks to the election, some Veterans will soon see expanded property tax exemptions.
-
Nevada Approves Diaper Tax Relief Amid Childcare CrisisTax Relief Nevada voters have expanded sales tax relief to diapers. But are prices still too high?
-
Earned Income Tax Credit (EITC) 2024: How Much Will You Get?Tax Credits The refundable amount for workers with or without children is slightly higher this year. Here’s what you need to know.
-
IRS Expands Tax Breaks for Breast Cancer Screenings, ContraceptivesHealthcare Now you can get a tax deduction or reimbursement for certain medical expenses, like over-the-counter birth control and condoms.
-
Adoption Tax Credit 2024: What You Need to KnowTax Credits The federal adoption tax credit is slightly higher for 2024. Here’s what you can claim under the tax break designed to help grow your family.
