Taxes on Lottery Winnings Around the World

Every lottery player has the dream of winning the lottery, but many don’t consider the taxes they may face in the event they do win. The tax percentage varies depending on the player’s country or state. While some are lucky enough to be citizens in countries with no taxes, many others face high tax rates that leave them with a smaller percentage of their winnings. To sort which is which, let's compare the taxes on lottery winnings around the world.

Countries with No Lottery Taxes

Surprisingly, there are many countries that don’t tax lottery winnings. Most notably, Australia and the United Kingdom consider lottery winnings tax-exempt. For the lucky citizens of other countries like Canada, New Zealand, South Africa, Finland, Germany, Ireland, and many other countries in Europe, lottery winnings are paid out as a tax-free lump sum.

Canada

Although Canada’s southern neighbours have to pay hefty lottery taxes (more on this later), lottery winners in Canada don’t have to pay a single penny. That’s because the Canadian government doesn’t see lottery winnings as a form of income—nor does it tax it as such. 

Considering that Canada’s most popular lotteries, Lotto 6/49 and Lotto Max, have had jackpot prizes reaching as high as $70 million, winners get to keep a lot more of their pies than winners in many other countries. While there are a few exceptions, mostly related to the interest earned on annuity payments and capital gain on non-cash prizes that are sold, winning a jackpot in Canada is about as good as it gets.

Australia

Luckily for most Australian residents, their lottery winnings—as well as other gambling winnings—are left untaxed. Of course, there are still those who are considered professional gamblers who must pay income taxes. This is because they are not employed the same way others are, but their time and resources go primarily toward playing the lottery and participating in gambling activities—somewhat like career players.

Still, pros are able to claim deductions for their losses, which can often be much larger than their winnings. The country prevents the tax-free system from being taken advantage of by considering which citizens can consider their gambling as their primary income.

Some of the largest lottery wins in Australia include a $107.5 million Australia Powerball jackpot by a woman from Sydney in January 2019 and an Australian father who won $96 million in August of the same year.

United Kingdom

Considering the National Lottery is one of the largest lotto systems in the world, it seems too good to be true that taxes on lottery winnings in the UK do not exist. Fortunately for the country’s citizens, winnings are not considered as income by the government, so winners will receive the entire amount of their jackpot upon winning.

Still, future taxes can apply in situations where interest is earned on deposited winnings or further income is brought in through investments made with lottery winnings. Regardless, the percentage winners would pay towards income taxes in the UK beats the percentage winners pay on their winnings alone in countries like the US.

Other taxes can also apply in certain situations, such as the gift tax and inheritance tax.

The United Kingdom has seen some large wins in its lottery history, particularly with big lottery games like EuroMillions and UK Lotto including £170m won by an individual who decided to stay anonymous in October 2019 and £161 million won by Christine and Colin Weir in July 2011.

South Africa

The South Africa Revenue Service (SARS) neither considers lottery winnings to be a primary source of income nor a capital gain and doesn't tax them as such. Therefore, whatever you win from the country's popular Lotto, Powerball, and Raffle games are yours to keep in their entirety. Furthermore, winners are not mandated to declare their winnings, but it's generally a good idea because it helps keep SARS off your back.

While people who win at lottery or gambling games regularly may be treated differently because they such earnings would be their primary income, that won't ever apply to the vast majority of lottery players. However, if you know anyone who wins prizes regularly, please have them contact us ASAP to share their secret! 

Countries with the Highest Lottery Taxes

Unfortunately, not all lottery players are as lucky as those in Australia and the United Kingdom. There are still many countries—such as India and the United States—that enact taxes on lottery winnings, oftentimes taking a large percentage of a player’s winnings.

India

Despite the growing popularity of India’s lotteries, winnings are still subject to hefty taxation. With lottery amounts being taxable under the country’s Income Tax Act, all winners have to pay a large tax of 30.9%—with no added benefit of the winnings being added to their income amount. Fortunately for those who are charitable, any donations that come from the winnings are deemed tax-exempt.

The United States

Depending on what state you live in, the lottery taxes in the US can be among the highest in the world—and with the jackpots of games such as Mega Millions and US Powerball reaching as high as $1.6 billion dollars, that's quite a chunk of change to hand over to the taxman.

When a lottery player wins $600 or more, they are immediately required to fill out a W-2G form for the IRS to establish their winnings. This is taxed like income. However, for those who win $5,000 or more, they not only have to fill out the same form to register their winnings—they are also immediately taxed 25%. Refusal to provide necessary information, specifically one’s social security number, results in a federal tax of 28% of one’s winnings. Tax percentages increase with larger wins.

For the states that don’t employ income taxes, like Alaska and Washington, national lottery tickets aren’t available for purchase. However, players are still able to participate online and in other states.

The states with the lowest state lottery tax rates are North Dakota (2.90%), Indiana (3.23%), Michigan (4.25%), Arizona (4.54%), Colorado (4.63%), New Mexico (4.90%), Illinois (4.95%), and Ohio (4.99%).

The states with the highest lottery taxes are Oregon (9.90%), Minnesota (9.85%), Iowa (8.98%), New Jersey (8.97%), D.C. and Vermont (8.95%), Wisconsin (7.65%), Idaho (7.49%), Maine (7.15%), and South Carolina (7.0%).

Comparison Table: All Major Countries’ Lottery Tax Rates

Conclusion

Though lottery taxes are enough to intimidate many people right out of playing, it is typically still worth giving it a shot. After all, winnings often amount to much more than what the player spent on their tickets. The risk may not always seem worth it, but if it’s the taxes scaring you away, just remember: winning means you still go home with more money than you had in the beginning, even if the government insists on taking a large cut.