Do You Get Lottery Taxes Back? How Refunds and Credits Work
Learn how lottery winnings are taxed, when you might be eligible for a refund, and how tax credits could impact your final tax liability.
Winning the lottery can be exciting, but taxes can take a significant portion of your prize. Many winners wonder if they can get some of that money back when filing their tax return. The answer depends on several factors, including how much was withheld, total income, and applicable deductions or credits.
How Taxes Are Withheld from Winnings
For lottery prizes above a certain threshold, a portion is automatically withheld for taxes. The IRS mandates a 24% federal withholding on prizes of $5,000 or more. For example, if you win $50,000, you receive $38,000 after $12,000 is withheld. However, this may not be your final tax obligation, as your total liability depends on your overall income and tax bracket.
State taxes may also apply. Some states, like California, do not tax lottery winnings, while others, such as New York, impose a state tax that can exceed 10%. Additionally, cities like New York City levy local taxes. If you win in a state where you do not reside, you may still be subject to that state’s withholding but could claim a credit in your home state to avoid double taxation.
For large jackpots, winners who choose a lump sum payment have taxes withheld immediately on the reduced cash value of the prize, typically about 60% of the advertised jackpot. Those opting for annuity payments have taxes withheld on each installment as they receive it. Since each payment is considered taxable income in the year it is received, this can affect your tax bracket over time.
Potential Refunds and Overpayments
The amount withheld from lottery winnings is an estimate rather than the exact tax obligation. If your total taxable income places you in a lower bracket than the 24% withheld, you may receive a refund. For example, if your tax rate is 22%, you would have overpaid by 2% and could get that amount back when filing.
Deductions and other income sources also play a role. Significant itemized deductions—such as mortgage interest, medical expenses, or charitable contributions—can lower taxable income and reduce your final tax bill. If your total liability is less than what was withheld, the excess is refunded.
State tax refunds may also apply. Some states withhold taxes at a fixed rate that might not match your actual tax bracket. If a state withheld 8% but your final rate is 5%, the 3% difference could be refunded. Residents of states that do not tax lottery winnings but had taxes withheld due to purchasing a ticket elsewhere may be eligible for a refund or a credit when filing in their home state.
Credits That Might Affect Your Tax Return
Tax credits directly reduce the amount owed to the IRS and can increase a refund.
The Foreign Tax Credit applies if you purchased a ticket in another country and had taxes withheld there. The U.S. allows taxpayers to claim a credit for foreign taxes paid to prevent double taxation, subject to IRS Form 1116 requirements.
The Earned Income Tax Credit (EITC) may be affected by lottery winnings. While gambling winnings are taxable, they do not count as “earned income” for EITC eligibility. A large prize could increase your adjusted gross income (AGI) enough to disqualify you from the credit. The phase-out thresholds change annually, so reviewing current IRS guidelines is essential.
Education-related credits, such as the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC), could also be impacted. These credits have income limits, and a significant increase in AGI from lottery winnings may reduce or eliminate eligibility. Those who previously claimed these credits should verify whether their new income level affects their ability to benefit.
Filing Steps for Claiming Any Refund
To claim a refund, accurately report your lottery winnings on your tax return. The lottery agency will issue Form W-2G, detailing the amount won and taxes withheld. Verify that this form matches your records, as discrepancies can lead to IRS scrutiny. If incorrect, request a corrected version before filing to avoid delays.
Enter the winnings on Form 1040 under “Other Income” to ensure proper tax calculation. Report the withheld taxes in the payments section to reflect the pre-paid tax amount. If withholding exceeded your total liability, the excess contributes to a refund. Those itemizing deductions should document eligible expenses, as this can lower taxable income and increase the refund.
State tax filings require similar attention. Some states mandate separate reporting of gambling winnings, while others integrate them into overall income. If taxes were withheld in a state where you do not reside, determine whether a refund claim or a tax credit in your home state is the better option to prevent unnecessary payments.
Adjusting Withholding on Future Winnings
Lottery winners who anticipate future prizes or frequently gamble may want to adjust their tax withholding to align with their actual liability. The default withholding rate may not accurately reflect your final obligation, so proactive planning can help avoid overpayments or unexpected tax bills.
Filing Form W-4V with the lottery commission allows you to request a higher voluntary withholding rate, which can be useful if you expect to be in a higher tax bracket due to other income. Conversely, if you consistently receive refunds, setting aside less in withholding and making estimated tax payments based on your projected liability provides better cash flow control while ensuring compliance with IRS requirements.
State tax rules also impact withholding adjustments. Some states allow modification of withholding preferences, while others apply a fixed rate. Understanding state-specific rules helps optimize tax strategy, especially if you live in a state with no income tax but buy tickets in jurisdictions that do impose taxes. Consulting a tax professional can provide guidance based on your financial situation and expected winnings.