The federal government takes the largest single share of a jackpot, and the rules are simpler than most winners expect: 24% withheld, 37% owed, one tax year, no special rates.
Why the withholding is 24% and the bill is 37%
Two different statutes. The withholding rate is fixed by statute at 24% for gambling proceeds over $5,000 — it has not tracked the top bracket since 2018, when the top rate fell to 37% but withholding stayed at 24% (it was 25% before). Your liability is set by the ordinary income brackets, which top out at 37%.
The result is a built-in shortfall. On $283,900,000 of cash value, withholding is $68,133,312 and the actual bill is $104,988,856, leaving $36,855,544 due at filing.
What is actually taxable
- The cash value, not the advertised jackpot. If you take the lump sum, you are taxed on what you receive — $283,900,000 — not on the $674,000,000 headline.
- Each annuity payment as it arrives. The 30 payments are taxed year by year, so no single year carries the whole prize.
- The gross amount, before withholding. The 24% withheld is part of your income; it is a payment, not an exclusion.
- Prizes of every size. A $500 win is taxable income even though nothing is withheld. The lottery reports it on a W-2G when the threshold is met.
What is not taxable, and what people get wrong
Lottery winnings are not subject to the 3.8% net investment income tax, because they are not investment income. They are not subject to the additional Medicare tax, because they are not wages or self-employment income. They are not eligible for capital gains rates, no matter how long you hold the ticket.
If you itemise, state tax paid on the winnings is deductible only within the SALT cap, which is $40,000 for 2025 and indexed — negligible against a jackpot. Most winners take the standard deduction.
The forms
| Form | What it does |
|---|---|
| W-2G | Reports the gambling winnings and the federal tax withheld. The lottery files it and sends you a copy. |
| 1040, line 8b | Where the winnings are reported as other income on your return. |
| Schedule A | Only relevant if you itemise and deduct state tax or gambling losses, both capped. |
| Form 5754 | Used when a group shares a ticket, so each person is taxed on their own share rather than one person on the whole prize. |
| 1040-ES | Estimated payment, if you want to settle the shortfall before the filing deadline. |
Estimated payments and the safe harbour
You do not have to wait until April. Making an estimated payment in the quarter you receive the prize stops interest accruing and removes the underpayment penalty. The safe harbour is paying at least 90% of this year's total tax, or 100% of last year's (110% if your prior-year AGI exceeded $150,000).
For a prize this size, the practical move is to pay the full calculated liability in the quarter of receipt and file for a refund later if anything changes.
Married filing jointly vs single
The difference is small at jackpot scale, but it is not zero. A married couple gets a larger standard deduction and two sets of lower brackets, which absorbs a bit more of the prize at rates below 37%. On a $674M jackpot the difference runs to roughly one to two hundred thousand dollars — meaningful to a person, a rounding error to the prize.
Trusts, estates and assignments
A trust that claims a prize is taxed at trust rates, which hit 37% at a much lower income threshold than individual rates. That can be worse, not better, and it removes the standard deduction. Trusts are useful for anonymity and estate planning; they are rarely a tax saving.
Assigning payments to someone else is a transfer of income. The IRS generally treats the assignor as receiving the income first, and the assignment can also trigger gift tax if it exceeds the annual exclusion ($19,000 per recipient in 2026).