These states exempt Mega Millions jackpot from taxes.
These states exempt Mega Millions jackpot from taxes.
8 States That Don’t Tax Lottery Winnings
If you’re feeling lucky and have your eyes on the Mega Millions jackpot, you might be wondering how much of that massive prize you’ll actually take home. The good news is that the advertised jackpot for the next drawing is a whopping $1.25 billion, with an estimated cash payout of about $625.3 million. However, it’s important to remember that the IRS takes federal tax “off the top.” And depending on which state you live in, you may also have to pay state taxes, further reducing your windfall. But fear not, because there are eight states in the U.S. that don’t impose taxes on lottery winnings, which means you get to keep more of your money.
The Federal Tax Burden
Let’s start with the federal tax. The winner of the Mega Millions will have to pay federal income taxes based on their tax rate, which can be quite substantial considering the multi-billion-dollar prize. However, in addition to the federal tax, depending on the state in which you reside, you may also have to pay state taxes on your winnings. The good news is that if you live in one of the following eight states, you won’t have to worry about state taxes on your Mega Millions prize.
1. Wyoming – A Tax Haven
Wyoming is not only a beautiful state with breathtaking landscapes, but it’s also a great place to win the lottery. In Wyoming, you won’t be subject to state taxes on your Mega Millions winnings. In fact, Wyoming is one of only 13 states that won’t tax retirement income. But that’s not all – the state has no personal or corporate income taxes, and there are no estate or inheritance taxes either. This low-tax environment has earned Wyoming a reputation as a tax haven for middle-class families.
2. Washington – No State Income Tax
Washington is another state where you can keep your Mega Millions prize money intact. The state does not impose a personal income tax, which means you won’t have to pay state taxes on your lottery winnings. However, it is worth noting that the state recently introduced a controversial capital gains tax, which has caused some debate. Nevertheless, the absence of a state income tax is definitely a win for lottery winners in Washington.
3. Texas – A Jackpot State
If you win the Mega Millions in Texas, you’re in luck. The Lone Star State doesn’t tax your lottery winnings, which means you get to keep all that money. In fact, Texas has seen more multi-million second-tier Mega Millions prizes than any other jurisdiction, making it a true jackpot state. So, if you’re thinking of buying a lottery ticket, Texas might just be the place to do it.
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4. Tennessee – No Income Tax
Residents of Tennessee can celebrate winning the Mega Millions without worrying about handing over a portion to the state. Tennessee doesn’t have an income tax, which means you won’t be taxed on your lottery winnings. Moreover, the state offers several sales tax holidays and grocery tax relief programs, providing further financial benefits to its residents. Currently, Tennessee residents have a three-month grocery tax holiday to enjoy.
5. South Dakota – Tax-Free Winnings
South Dakota is another state that doesn’t impose taxes on your Mega Millions jackpot. The lack of a personal income tax in the state means you can keep every penny of your winnings. However, it’s important to note that although South Dakota has relatively low state and local sales tax rates, sales tax is applicable to both groceries and clothing.
6. New Hampshire – No Income or Sales Tax
Winning the lottery in New Hampshire also comes with financial benefits. The state doesn’t have an income or sales tax, meaning you won’t have to pay state taxes on your Mega Millions prize. However, property taxes in New Hampshire are relatively high, and dividends and interest income are taxed at a rate of 5%. But the exemption from income and sales taxes helps to offset these costs.
7. Florida – Tax-Free Sunshine
Florida is not only known for its sunny beaches but also for its favorable tax environment. The state doesn’t tax lottery winnings, so your Mega Millions prize won’t be subject to state taxes. What’s more, Florida is one of the nine states in the U.S. that doesn’t have a personal income tax. In addition, a recent tax relief bill in Florida has introduced several tax-free purchase options, including six sales tax holidays throughout the year.
8. California – No Tax on Winnings
If you strike it big in California and win the Mega Millions jackpot, you’re in luck. The state doesn’t impose taxes on lottery winnings, so you can keep the entirety of your prize. This news is particularly exciting for two California tickets that recently matched five white balls for $1 million prizes. However, it’s important to note that California has high taxes in other areas, such as sales tax rates and gas taxes.
So, if you’re feeling lucky, and happen to live in one of these eight states, you have an even greater chance of holding onto your entire Mega Millions prize. Winning the lottery is a dream for many, but thanks to these tax-favorable states, that dream can become a reality without the worry of substantial tax deductions.
