Taxes on Winning the Lottery


A lottery can be a fun way to win big cash prizes, housing units, or a kindergarten placement. The National Basketball Association even holds a lottery for the 14 worst teams to determine draft picks. The winning team gets the best college talent in the country. While some people may think that a lottery is only for amateurs, it can actually be a great source of professional basketball talent. Many people also use the lottery as a way to improve their team and get a better draft pick.

Historical background

Although the origins of the lottery are not completely clear, many scholars believe it originated in ancient China. The Book of Joshua describes Moses’ practice of dividing land by lot. Ancient Roman emperors often used lotteries to distribute slaves and property. Lotteries spread throughout the world and were introduced by the Romans to the European continent. In fact, the word ‘lottery’ is derived from the Dutch word for fate.

Types of lotteries

There are various types of lotteries. In the United States, each state holds its own lottery. In addition, Washington, D.C., Puerto Rico, and the U.S. Virgin Islands hold lottery games. The main purpose of a lottery is to raise money for state governments. Players purchase numbered tickets from a licensed retailer. They may choose their own numbers, use Quick Pick machines, or purchase pre-selected numbers. Money earned through the lottery goes to pay for public services. The drawings are held weekly.

Taxes on winnings

Winning the lottery is an incredible thing, but it doesn’t come without its own set of tax rules. You’ll need to file taxes on the winnings you receive, both federal and state. As with any other form of income, the total amount of tax you owe depends on where you live and the type of lottery payment you receive. Most big lottery winners receive lump-sum payments, meaning they don’t have to pay any state taxes at all. Others receive payments that are taxed over a period of years.

Anonymity of winners

Some states are taking the issue of revealing lottery winners’ identities to the public more seriously. Recently, a woman in New Hampshire who won the $560 million Powerball jackpot went to court to preserve her anonymity. She was concerned that if her name was made public, she would be bombarded with requests to buy tickets and cash in the winnings. The lottery commission argued that revealing a winner’s name would be an invasion of privacy, and therefore, should be protected. A state court in New Hampshire decided that the woman’s anonymity was a reasonable compromise, and allowed her to claim her prize in a way that protected her privacy.

Social impact of winning a lottery

There are some important limitations to the empirical studies on the social impact of winning the lottery. The short-run effects of winning the lottery are often larger than the long-run effects, which makes it difficult to make valid assumptions about these effects. One study in the Netherlands, Kuhn et al. (2011), reported that lottery winners did not have statistically significant effects on their happiness. This study is not the only one, however, that demonstrates how small the effects of lottery winnings can be on social outcomes.