The information in this article is up to date through tax year 2019 (taxes filed in 2020).

• How Much Are Gambling Winnings Taxed In California Unemployment
• How Much Are Gambling Winnings Taxed In California Today
• How Much Are Gambling Winnings Taxed In California State
• How Much Are Gambling Winnings Taxed In California Tax
• How Much Are Lottery Winnings Taxed In California

If you won the lottery, congratulations! You have 60 days to decide if you will take a lump-sum payment, which is one check for the single amount after federal taxes have been withheld, or an annuity, which is smaller annual payments that equal the total winnings. Here are some answers to your most burning lottery tax questions, and some ideas for protecting your newly acquired wealth.

Lottery winnings are considered ordinary taxable income for both federal and state tax purposes. Winnings are taxed the same as wages or salaries are, and the total amount the winner receives must be reported on their tax return each year. Before the winner receives any of the money, however, the IRS automatically takes 24% of the winnings.

Should I take the lump sum or the annuity when I win the lottery?

Choosing annual payments will place you in a lower tax bracket that year. This will reduce your tax liability. However, there is a strong chance that taxes will go up over the years. If you win the Mega Millions or any other lottery, it is better to take the lump-sum. It may seem like less money up front – but if you take the annuity, the lottery is only required to pay you 4.5% of your earnings per year. It will take you a long time to receive all of your winnings, especially if you win millions. If you take the lump-sum, be sure to hire a financial advisor so you don’t make the same mistakes as so many of the previous winners. Consider immediately investing the lump-sum, and let your investments begin collecting sooner.

1. A federal tax is levied on all winners of prizes greater than $5,000, while many of the participating states apply their own tax on top of this. In addition, some locations, such as New York City, levy a local tax on lottery winnings. You can find out how much tax you might have to pay below.
2. The federal government taxes gambling winnings at the highest rates allowed. So do the many states and even cities that impose income taxes on their residents. If you make enough money, in a high-tax state like California or New York, the top tax bracket is about 50 percent.
3. Although it's too late but typically as long as you keep your winnings below a certain amount it's tax exempt I believe it's 2500 and you can have a friend cash out the other 1500.

What federal taxes will I have to pay with a lump-sum payment?

Usually, 25% of the lump-sum will be withheld for federal tax. This is typically less than what you will owe the government. You will need to file a return with Form W-2G that reports your winnings to the IRS.

What federal taxes will I have to pay with the annuity?

If you opt to take annual payments, each installment will be taxed when you receive it. You will still owe more in April than they took out of each payment.

Will I have to pay state taxes on my lottery winnings?

Yes, unless you live in one of the following states: Alaska, California, Florida, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, or Wyoming.

How do I minimize my tax liability?

Use the money to donate to charities. Then itemize your deductions and lower your tax liability. Or gift portions of the money to friends and family. You can give up to $15,000 per person per year before the gift tax applies. You can also put your money in a trust. If something happens to you, this will minimize taxes on your estate.

What is a trust?

A trust allows a third party, known as a trustee, to hold financial assets on behalf of a person, known as a beneficiary. There are several kinds of trusts and ways to set them up. Trusts avoid settling an estate by testing the person’s will, which is known as probate. A trust clearly defines who will receive which assets in case of death and how taxes and debt will be paid. This allows your family and friends to acquire these assets more quickly. If you win the lottery and it is a significant sum, setting up a trust for any remaining money you don’t donate or spend will help your family in the future and protect the money while you are living.

Should I invest my winnings?

You can invest whatever money you don’t decide to donate, gift, or place in a trust. If you do this correctly, you might not have to work a normal job anymore. But are you prepared to pay taxes like a millionaire? If you invest a portion of your winnings, the money you receive from these investments will be taxed as capital gains. This is a different tax rate than normal income. Read more here.

Most states require you to pay taxes on gambling winnings. Of course, some states are friendlier than others when it comes to taxing your wins.

Certain places don’t charge any taxes when you win in gambling. You definitely want to consider betting in these states when you have the opportunity.

But what are the states that don’t tax gambling winnings? Of the states that do tax, which ones don’t charge you much?

This page discusses where you can gamble tax-free (minus federal taxes). It also covers what else you should know regarding taxes on real money gambling.

States That Don’t Tax Your Gambling Winnings

If you look at the gambling laws by state, nine states don’t collect taxes from your betting wins. That said, you’ll want to keep the following places in mind when planning your next gambling trip.

How Much Are Gambling Winnings Taxed In California Unemployment

Alaska

The Last Frontier doesn’t offer many gambling opportunities on its frontier. Alaska only provides legal casino cruise ships, bingo, and pull tabs. At least you don’t need to pay state taxes when winning through any of these activities, though.

Delaware

With fewer than 974,000 residents, The First State isn’t overly large. Nevertheless, it does offer a thriving gaming industry that includes three racinos.

Florida

The Sunshine State boasts tribal casinos, poker rooms, and racetracks. Floridians also enjoy a 0% tax when winning at these gambling establishments.

Nevada

With over 440 casinos, Nevada’s gaming industry needs no introduction.

The Silver State won’t level state taxes on any of the big jackpots you win in Las Vegas, Reno, Laughlin, or elsewhere.

New Hampshire

The Granite State offers a few charity casinos and sportsbooks. You won’t need to pay taxes to New Hampshire when beating the bookies or casinos.

South Dakota

South Dakota may not have the largest population (885k). But it still offers 45 casinos and a bustling gaming destination in Deadwood.

Texas

The Lone Star State boasts one of the largest populations with 29 million residents. However, it doesn’t offer an abundance of gambling options compared to its big population. Texas features a few casinos (Class II only), horse tracks, and charity gaming venues.

Washington

The Evergreen State features a harsh stance on online gambling that includes felony charges. Nevertheless, it does offer some betting opportunities, including tribal casinos, poker rooms, and racetracks.

Wyoming

Wyoming is the smallest state in terms of population (579k). It still provides some gaming venues, though, including charity casinos, horse tracks, and poker rooms.

States With Low Tax Rates on Gambling Wins

Most states do tax you to some degree regarding winnings, and some states have a high gambling tax. However, the following ones don’t take much from you.

Arizona

The Grand Canyon State provides tribal casinos, horse tracks, and charity gaming. Arizona features a relatively low 4.54% tax rate on gambling wins.

Indiana

The Hoosier State features several casinos, multiple sportsbooks, and regulated online betting. Indiana taxes winnings at a 3.23% rate.

Michigan

Michigan offers 26 casinos, including three commercial venues in Detroit and 23 tribal establishments throughout the state.

It also features sports wagering and legal online gambling sites. The Wolverine State only charges a 4.25% tax rate on winnings.

North Dakota

Out of the states that tax winnings, North Dakota does it to the smallest degree at 2.90%. The Roughrider State provides tribal casinos, charity casinos, and lotteries.

Pennsylvania

Pennsylvania has become a mini-Las Vegas with 12 casinos along with poker rooms and sportsbooks. It only charges a 3.07% tax rate on gambling wins.

What If You Win in a State That Taxes Casino Winnings?

Only nine states let you off the hook regarding income tax on winnings. Odds are, you live in a state that taxes gambling profits.

That being said, take surrounding states and their taxes into consideration. Provided you live in/near a state with no, or low, gambling taxes, then you’re in good shape.

Federal Taxes Always Apply

Earlier, I covered nine states that don’t tax your wins in casinos, sportsbooks, poker rooms, etc. Even if you hail from one of these places, though, you still need to cover federal taxes.

Uncle Sam taxes your gambling winnings at 24%. This percentage is almost double the top rate in California (13.3%), which features the highest top-end gambling tax out of any state.

The federal government doesn’t expect you to only report jackpots or highly profitable years. It wants you to report every penny earned through gambling.

Of course, the IRS almost assuredly won’t hound you over a $10 winning Super Bowl bet against your friend. They will, however, care when you’re hitting jackpots and making serious profits.

A State Can Withhold Federal Taxes From Your Casino Wins

States are supposed to withhold federal taxes from large gambling payouts. Their casinos and sportsbooks will also issue a W-2G form if the win is big enough.

You need to fill this form out and give it to the gambling establishment. They’ll turn around and send it to the IRS before releasing your winnings.

Here are the guidelines on when bookmakers/casinos/poker rooms hand you a W-2G:

• $5,000+ payout in a poker tournament.
• $1,500+ payout in keno.
• $1,200+ payout through a slot or video poker machine.
• $600+ payout for a winning horse or sports bet (if win is 300x your stake).

Gambling Losses Are Deductible

As covered before, the IRS and state governments want you to report every dollar earned through gambling. However, you can deduct losses from winnings.

Everything that you wager and lose en route to winning counts as itemized deductions. These deductions reduce the amount of taxable income you’ll owe.

Here’s an example:

• You win $2,500 through a slot machine.
• You must report $2,500 under “other income.”
• You spend $1,700 to win this amount throughout the year (itemized deductions).
• $2,500 – $1,700 = $800 in reportable income.

You should record all of your gambling sessions for tax purposes. If the IRS ever comes calling for an audit, you’ll want evidence of your wins and losses.

The more information you possess, the better chance you stand of passing an audit with flying colors.

Can You Get Away Without Paying Gambling Taxes?

For the sake of avoiding any legal headaches, you should report gambling income and pay taxes on it. Of course, you may still wonder if it’s possible to get away without covering gaming related taxes.

Three potential reasons why you might wonder this include:

1. You don’t want to mess with $50, or so, of gambling winnings.
2. You don’t have records of losses and think that it’s unfair to cover taxes on wins.
3. You win big and want to avoid paying taxes.

In the first two cases, you may feel justified in not covering taxes. Dealing with winnings can be a major headache in these situations.

In the third case, you likely know that failing to cover taxes on huge wins is wrong. But you may consider it anyways because you don’t feel like giving away a chunk of your payout.

Again, state governments and the IRS want you to report everything. They leave it up to you to follow the laws in your respective jurisdiction.

I suggest that you keep records and go the honest route with gambling taxes. This way, you don’t need to sweat if you’re ever audited.

How Much Are Gambling Winnings Taxed In California Today

One situation when you definitely want to report wins is if you receive a W-2G form. Casinos and sportsbooks send W-2G’s to the IRS.

Therefore, the taxman will have documentation that you’ve earned a big prize. You don’t want to give them a reason to audit by not covering taxes on a large payout.

Conclusion

How Much Are Gambling Winnings Taxed In California State

Hopefully, you live in or near a state that doesn’t require you to claim gambling winnings on your taxes. In this case, you can win big and only worry about paying the IRS.

How Much Are Gambling Winnings Taxed In California Tax

Chances are, though, you live somewhere that imposes income tax on winnings. If so, you should consider if there are any nearby options that either don’t tax gambling wins or at least feature low rates.

How Much Are Lottery Winnings Taxed In California

Maybe this issue isn’t of the utmost importance to you—especially when you’re only playing for small stakes. But if you play for mid or higher stakes, then you can save yourself some money by playing where there’s no/little taxes taken from wins.