The odds are that you are going to win tonight’s Powerball multi-state lottery drawing are very small. You’re more likely to be struck by lightning, or eaten by a shark. Still, that doesn’t stop people from paying $2 for a slip of hope. As long as you’re planning what you’re going to do with that money, you should keep in mind that where you buy a ticket matters for tax reasons.
If you’re curious and are planning to buy tickets across state lines, the lottery site USAMega has a handy chart with the current tax rate for each state on lottery prizes. You’ll have tax withheld according to the tax rate of where you bought the ticket, regardless of where you actually live. You should also keep in mind that you have to redeem the ticket in the state where it was purchased.
CNBC uses the example of someone who works in New York City and lives in New Jersey. While the federal government’s tax bite is always the same, the combined state and city taxes withheld for a ticket bought in NYC will be 12.7%.
Buying the same ticket at home in New Jersey means that only 8% would be withheld. That might not seem like a big difference, but the excess tax would be $20.8 million — for a sole winner who took the $443.3 million lump sum payment.
A New Jersey taxpayer would get that money back as a refund eventually, but only after filing his or her tax return the following winter or spring.