Some lottery winners will have to pay more tax in the new year, and 10 states will change their levies.

When a new year starts, state tax rates change, and this includes how states tax lottery winnings. But people who play the lottery in nine states will be happy to know that in 2023, their lottery winnings will be taxed less.

For 2023, ten states changed how much they will tax lottery winners. They are Arizona, Arkansas, Idaho, Indiana, Iowa, Kentucky, Massachusetts, Missouri, Nebraska, and North Carolina. The only one that didn’t was Massachusetts.

Iowa cut its highest earners’ state income tax rate from 8.53 percent to 6 percent. This was the biggest lottery tax cut. All 10 of the states listed above are among the majority of states that tax lottery winnings as income.

2023 Tax Cuts for State Lotteries

• Arizona — 4.5% to 2.5%
• Arkansas — 5.5% to 4.9%
• Idaho — 6% to 5.8%
• Indiana — 3.23% to 3.15%
• Kentucky — 5% to 4.5%
• 5.3% to 4.9% in Missouri
• Nebraska — 6.84% to 6.64%
• 4.99% to 4.75% in North Carolina

Massachusetts, on the other hand, raised the tax on big winners. Voters in the state backed a referendum on the ballot in November 2022 that made this happen.

The constitutional change adds a 4% tax on people who make more than $1 million a year. That makes the effective lottery tax rate for big winners in Massachusetts 9%, since the state already taxes its highest tax bracket by 5%.

Best States to Hit the Lottery

The jackpot for the Mega Millions game on Tuesday night is about $940 million. Even though anyone would be happy to win that much money, it would be best to win in one of the nine states that don’t count lottery winnings as personal income.

Winnings from it are not taxed in California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For a prize like the one Mega Millions is giving away, that’s a big difference.

For example, if someone wins the Mega Millions jackpot tomorrow and chooses the one-time cash payout of about $483.5 million, the prize would be cut by about $179 million after the federal government takes its 37% cut. In the nine states that don’t tax the prize any further, the Mega Millions winner would get all of the remaining $304.6 million.

But in states like Maryland, where lottery winnings are taxed at 8.95%, the take-home amount would be cut by almost $43 million, leaving a net payout of about $261 million.

Business

US lottery tickets cost $80 billion annually. Last month’s LendingTree research indicates so.

The 18 states with the largest lottery spending per person are east of the Mississippi. Massachusetts residents spent most on lottery games.

Massachusetts lottery players averaged $805 in 2020. New York spent $456 per person, second only to Massachusetts.

Massachusetts has one of the highest per-capita incomes in the US, according to the lottery spending research. Massachusetts had a household income of $84,385, 30% higher than the national average of $65,000 in 2020.