Does Florida Tax Lottery Winnings?

Florida does not impose a state-level tax on lottery winnings. This is a direct result of the state not having a personal income tax, which is the mechanism most states use to tax such prizes. For anyone winning a prize from a Florida-based lottery game, their winnings are not subject to any deductions or future tax bills from the Florida Department of Revenue.

Federal Tax on Lottery Winnings

While Florida does not take a share, the Internal Revenue Service (IRS) does. Lottery winnings are treated as ordinary income at the federal level, meaning they are taxed in the same way as wages or a salary. For any prize exceeding $5,000, the Florida Lottery is required by federal law to automatically withhold 24% before the prize money is ever paid to the winner.

This initial withholding, however, is rarely the full amount of tax a winner will ultimately owe. A substantial lottery prize will almost certainly push a winner into the highest federal income tax bracket, which has a top marginal rate of 37%. This means that while the first portion of their income is taxed at lower rates, the vast majority of the lottery winnings will be taxed at this top rate. The winner is responsible for paying the difference between the 24% withheld and their final, higher effective tax rate when they file their annual federal income tax return.

Payout Options and Tax Consequences

Winners of large jackpots face a choice between two payout options, each with distinct federal tax consequences. The first is the lump-sum cash option, where the winner receives the entire prize, after the initial 24% federal withholding, in a single payment. Opting for the lump sum means the winner must report the full amount as income in that one tax year, resulting in a very large tax bill due for that year.

The alternative is the annuity option, which distributes the prize through annual payments over a set period, typically 30 years. With an annuity, the winner only pays federal income tax each year on the amount of the payment received in that specific year. This structure can prevent the winner from being pushed into the highest possible tax bracket immediately and spreads the tax liability over decades. The choice must often be made within the first 60 days after the draw date.

Residency and Non-Resident Considerations

The tax implications of a Florida lottery win can change based on the winner’s residency status.

U.S. Residents of Other States

For a U.S. citizen who lives in a state with its own income tax, their home state will generally tax the lottery prize. The winner is typically required to report the prize as income on their home state’s tax return. This means they will be subject to their state’s income tax rates.

Non-U.S. Citizens

Non-resident aliens who win the Florida Lottery face a different set of federal rules. The Florida Lottery is required to withhold a flat 30% from all prize amounts for non-resident aliens, a higher rate than the 24% for U.S. citizens. This withholding may be adjusted if a tax treaty exists between the winner’s home country and the United States that specifies a different tax treatment for such winnings.