Tax Implications of Winning the Lottery

Americans spend over $80 Billion on lottery tickets each year – that’s more than $600 per household. This money could be better spent on building an emergency fund or paying off credit card debt. But if you win the lottery, there are huge tax implications that can take away half or more of your winnings!

Whether you play the state or national lottery, odds vary wildly and depend on how many people purchase tickets and how much each ticket costs. But there’s a general principle: The more expensive the ticket, the lower the odds of winning. And even with the cheapest tickets, there’s still a very small chance of winning.

The casting of lots to decide fates and property has a long history (there’s even an example in the Bible). But lotteries as a way to give away prizes for material gain are less ancient. The first recorded public lotteries were held during the Roman Empire for municipal repairs and to help the poor. Lotteries became widespread in the Low Countries in the 15th century, with records cited from Ghent, Utrecht, and Bruges.

Most states earmark some of the lottery proceeds for specific purposes, such as education or social services. But critics charge that “earmarking” is misleading, since the legislature simply reduces by the same amount the appropriations it would have otherwise allotted for those programs from the general funds. That means that the appropriations remain available to the legislature for other, non-lottery purposes.