I Asked ChatGPT What Happens to Your Taxes if You Win the Lottery — Here’s What It Said
When you dream of winning the lottery, you probably imagine dramatically quitting your job and spending hours on the beach. Perhaps you’re zipping around town in an elite sports car. Maybe you’d just like to buy your home outright and plant a nice garden. Still, your daydreams probably don’t involve the nitty-gritty of taxes.
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I hate to burst your bubble, but your lottery windfall is taxable income. Yes, even the hypothetical kind. I know — I’m sorry. Still, if you’re going to make hypothetical plans for your hypothetical earnings, you should know the real-world tax implications. So I fired up ChatGPT and asked it what happens to your taxes after you win the lottery.
If that next scratch-off you buy is lucky, you’ll thank me.
Federal Taxes Are Due
ChatGPT ripped the Band-Aid right off, saying that the Internal Revenue Service treats lottery winnings as ordinary — and fully taxable — income. Bummer.
The AI said that “lottery agencies usually withhold 24% federal tax right away when you claim the prize.” While ChatGPT can give good baseline information, I’ve found it sometimes lacks nuance, so I double-checked this fact — and I’m glad I did.
TurboTax gave a more detailed and accurate account of how federal lottery taxes work:
“Lottery agencies are generally required to withhold 24% of all winnings over $5,000 for taxes. If your winnings put you in a higher tax bracket, you will owe the difference between the withholding amount and your total tax.”
TurboTax also shared that taking the lump-sum payout of a sizable lottery jackpot could push you into the top tax bracket of 37%. ChatGPT mentioned this possibility as well, albeit in very simplified terms: “Depending on your total income for the year, your federal tax rate could be up to 37%.”
State Taxes May Also Apply
If you thought only Uncle Sam wanted a taste of your lottery earnings, ChatGPT has more bad news: “Most states also tax lottery winnings, but the rate varies widely.”
However, not all states hold their hand out for your hard-earned — or maybe not-so-hard-earned — lottery winnings. ChatGPT mentioned that Florida and Texas don’t tax lottery winnings at the state level. Curious about the other states in that club, I did some additional research and found an H&R Block breakdown of states that don’t tax lottery winnings:
California
Florida
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming
If you were planning to move to any of these states soon, starting your stay with a scratch-off ticket might not be the worst idea.
You’ll Need To Choose a Lump Sum or an Annuity
The AI offered a mercifully easy-to-understand explanation of a major decision every jackpot winner must face: Do you take the money all at once or spread it out over time? Both choices come with tax implications, which ChatGPT described succinctly:
Lump sum: One large payment now (smaller than the advertised jackpot), taxed in the year you receive it.
Annuity: Paid out over about 30 years, with each annual payment taxed as you receive it.
Though ChatGPT didn’t share an opinion on which choice could help you save the most money, the TurboTax team made a strong case for annuity payments:
“If you take your winnings in an annuity payment plan over the typical period of 29 years, you should receive interest on the jackpot and you may not be in the highest tax bracket each year, depending on the size of your prize and your other income.”
There Are Other Tax Considerations
After outlining the bigger tax issues to consider after a lottery win, ChatGPT mentioned a few other things you’ll likely need to plan for.
Gifts to family: Sharing your winnings with loved ones can trigger additional tax considerations. While you can give away a certain amount each year to individuals without reporting it to the IRS, larger gifts must be reported and may count against your lifetime gift and estate tax exemption.
According to TurboTax: “The 2025 amount that you are allowed to give away is $13.99 million ($13.61 million for 2024) over your lifetime without paying a gift tax. You will typically owe 40% in gift tax for any cash or property transfers over that amount.”
Recordkeeping: The AI noted that you’ll need to report the winnings on your tax return, which, hopefully, you already realized.
Professional help: “Big winners often hire a tax attorney or CPA,” said ChatGPT. Truly excellent advice.
The Bottom Line
Hopefully, your daydreams of winning the lottery become reality someday. If they do, be glad you already know what to expect from a tax perspective. Expect to owe federal and likely state taxes, and be prepared to decide between a lump sum and an annuity.
Above all, find a qualified professional you trust to help you manage the money and the taxes that come with it.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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