Winning the Lottery in a State Where You Don't Live
Buy a winning ticket outside your home state and two states may want tax. How withholding, nonresident returns and the credit for tax paid elsewhere work.
Updated
Two states can tax the same prize
Your home state taxes all of your income wherever it comes from. The state that sold the ticket can tax prizes it paid out, even to people who live elsewhere. A win in a state you do not live in can therefore trigger two tax claims on the same dollars.
In practice you do not pay both in full. Your home state gives you a credit for tax paid to the other state, so you end up paying roughly whichever rate is higher. The calculator on this site uses your home state's rate for that reason, and it does not model the ticket state separately.
Nonresident withholding
The lottery that pays you withholds federal tax at 24% and may withhold state tax as well, even if you are a nonresident. Maryland is one example: it withholds 9.5% from residents and 8.75% from nonresidents on lottery prizes over $5,000. On a $10 million prize that is $875,000 withheld from a nonresident.
Withholding is a deposit, not a final bill. Your actual Maryland liability is worked out on a nonresident return, and the difference is refunded or due. The same gap between withholding and what you owe applies as it does federally, as we explain in our guide on the 24% withholding.
Not every state taxes or withholds from nonresidents the same way. Check the rules of the state where you bought the ticket before you claim.
The credit for tax paid to another state
When you file your home-state resident return, you claim a credit for the tax you paid the other state on the same income. The credit is normally capped at what your home state would have charged on that income.
Say an Ohio resident (top rate 2.75%) wins $10 million on a Maryland ticket. Maryland's withholding is $875,000. Ohio's tax on the prize would be about $275,000, so the credit wipes that out and Ohio collects nothing more. You have paid Maryland's rate, which is the higher one.
Reverse it. A New York resident (10.9% top rate) wins $10 million on a Florida ticket. Florida has no state income tax, so there is no credit to claim, and New York taxes the full prize at up to 10.9%, about $1.09 million, plus city tax if you live in New York City.
Buying in a no-tax state does not help
Some people drive across a border to buy a ticket in a state with no income tax. It changes nothing. Your home state taxes residents on income from anywhere, and the ticket's location does not alter that.
What your home state charges depends on where you live, not where the ticket was sold. The reverse also holds: if you live in a no-tax state like Texas or Florida and win on a ticket bought in a taxed state, that state may still tax you as a nonresident.
Moving after you win is not a reliable escape either. The state that sold the ticket can keep taxing its prize payments after you leave, a part-year move splits the year between two returns, and a move made mainly to avoid tax invites a residency audit. Take advice before you change address.
If your state has no lottery
Alabama, Alaska, Hawaii, Nevada and Utah do not sell Powerball or Mega Millions tickets. Residents buy them across the border, so a win in another state is common there.
Your home-state tax rules still apply. Using the site's rates, Alaska and Nevada charge nothing, Utah 4.5%, Alabama 5% and Hawaii 11%. A Hawaii resident winning $10 million on a ticket bought in a state that taxes nonresident winners at 5% pays that 5% there, then the credit offsets it against Hawaii's 11% and leaves the remaining 6% (about $600,000) due to Hawaii.
Filing a nonresident return
If the other state taxed your prize, file a nonresident return there for the year of the win, even though they have already withheld. That return reports the prize and settles the real liability, and your home state will usually ask you to attach it to support the credit.
You will file at least three returns: federal, the nonresident state and your home state. For a jackpot, hire a CPA who handles multistate work and engage them before you claim, since the claim form and the payout choice both affect what you file.