There’s another Powerball drawing Saturday, July 15, with an advertised jackpot of $875 million. The lucky winner will receive a cash payout of about $441.9 million, before taxes. However, the Powerball winner will have to pay considerable federal taxes.
The IRS will take taxes “off the top,” and the winner will have to pay additional taxes based on the tax rate tied to their federal income tax bracket, which will likely be high due to the multimillion-dollar payout.
8 States That Don't Tax Lottery Winnings
Here are eight U.S. states that currently don’t tax lottery winnings. But remember, these states still have to withhold federal taxes from your prize.
California
California doesn’t tax lottery winnings — that’s good news if you win the Powerball jackpot, as Californian Edwin Castro did with the World Record $2.04 billion Powerball jackpot late last year. But it’s no secret that the state gets much criticism for other high tax rates.
For example, Kiplinger has reported that California's reputation as a high-tax state is partly due to the relatively high prices of some goods. California also has one of the highest sales tax rates in the U.S., and high gas taxes add up for residents.
Florida
Florida also doesn't tax lottery winnings, so your Powerball prize will only be subject to federal taxes. Florida is also one of nine states that don't have personal income tax.
As Kiplinger reported, Florida property tax rates are relatively low compared to the national average, and a recently passed Florida tax relief bill allows Floridians to enjoy many items tax-free.
New Hampshire
Your lottery winnings won’t be taxed at the state level in New Hampshire mainly because the state has no income tax and no sales tax. Although, New Hampshire does have fairly high property taxes when compared to other states and taxes dividends and interest income at 5%.
South Dakota
South Dakota is another state with no personal income tax, so it won’t take state tax out of your Powerball or other lottery winnings. The combined state and local sales tax rate in the state is fairly low, but sales tax in South Dakota applies to groceries and clothing.
Tennessee
Tennessee doesn’t tax Powerball winnings because the state has no income taxes. And although Tennessee has one of the highest sales tax rates in the U.S., it has relatively low property tax compared to other states and a generally low cost of living.
Texas
Texas is another state that won’t tax your Powerball lottery winnings. However, the state’s sales tax rate of 6.25% is a bit high compared to other states, and localities can add 2% to that. But gas prices in Texas are on the low side compared to other states, and lawmakers just agreed on major Texas property tax relief.
Washington
Washington has no personal income tax and won’t tax your lottery winnings at the state level. However, Washington’s state Supreme Court recently upheld a controversial capital gains tax. Also, gas prices in Washington state for a time last month surpassed California’s as the most expensive in the U.S.
Wyoming
Wyoming doesn’t tax Powerball winnings and is one of 13 states that won’t tax your 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.
