Yes, New Jersey does tax lottery winnings, but only once a prize crosses $10,000. Anything at or below that amount is excluded from New Jersey gross income entirely. Once your prize is $10,001 or more, the full amount is taxable under the state’s graduated income tax, with a top rate of 10.75%.1Justia. New Jersey Code 54A:6-11 – Lottery Winnings2New Jersey Division of Taxation. NJ Income Tax Rates Federal income tax applies on top of that, so a headline-grabbing jackpot can lose close to half its value to taxes before you ever deposit a check.
The $10,000 Threshold and New Jersey’s Rates
The threshold is a bright line. A $10,000 prize owes no New Jersey income tax. A $10,001 prize is fully taxable, and the whole amount flows into your New Jersey Gross Income Tax return under “net gambling winnings.”3New Jersey Department of the Treasury. Division of Taxation – Lottery and Gambling Winnings
New Jersey’s rates are graduated, climbing with income. The top marginal rate of 10.75% kicks in once taxable income exceeds $1 million.2New Jersey Division of Taxation. NJ Income Tax Rates A multi-million-dollar jackpot pushes you well past that line in a single year, so most of the prize is taxed at the full 10.75%, on top of whatever you earned from work or investments during the same year.
What New Jersey Withholds Before You Get Paid
The New Jersey Lottery withholds state tax from your prize before you receive it. The rate depends on the size of the payout:3New Jersey Department of the Treasury. Division of Taxation – Lottery and Gambling Winnings
- Prizes of $10,001 to $500,000: 5% withheld
- Prizes over $500,000: 8% withheld
- Prizes over $10,000 claimed without a valid Taxpayer Identification Number: 8% withheld
Here is the catch that trips up large winners. Those withholding rates are lower than what you actually owe. If you win $2 million, the state holds back 8%, but your real New Jersey rate on most of that money is closer to 10.75%. The shortfall is yours to settle when you file your state return.
Federal Tax Stacked on Top
The IRS treats lottery winnings as ordinary income, the same as wages. There is no reduced rate for windfalls.4Internal Revenue Service. Topic No. 419, Gambling Income and Losses Your prize sits on top of any other income you earned that year, and the combined total determines your bracket.
For 2026, the top federal rate is 37%, applying to taxable income above $640,600 for single filers and $768,600 for married couples filing jointly.5Tax Foundation. 2026 Tax Brackets and Federal Income Tax Rates Any sizeable jackpot clears those thresholds immediately, so the bulk of a big prize is taxed at 37% federal plus 10.75% state. The combined top marginal rate approaches 48% on income above $1 million.
Federal withholding works much like the state’s. The payer withholds 24% of winnings whenever the prize minus your wager exceeds $5,000.6Internal Revenue Service. Instructions for Forms W-2G and 5754 That 24% is a deposit, not a settlement. Since the actual top rate is 37%, you owe the rest when you file. You will receive a Form W-2G from the lottery documenting the prize and taxes withheld, and you must report all gambling income on your federal return whether or not a W-2G arrives.4Internal Revenue Service. Topic No. 419, Gambling Income and Losses
Pay Estimated Tax or Face Penalties
The gap between withholding and your true liability is the single biggest trap for winners. On a $10 million lump sum, federal withholding takes about $2.4 million and New Jersey takes roughly $800,000. Your real combined bill could run closer to $4.8 million. Waiting until April to pay the difference triggers underpayment penalties.
The IRS expects taxes to be paid as income is received. To avoid a federal penalty, your total payments through withholding and estimated tax must equal at least 90% of the current year’s tax, or 100% of the prior year’s tax, whichever is less. For taxpayers whose prior-year adjusted gross income exceeded $150,000, the prior-year safe harbor rises to 110%.7Internal Revenue Service. Topic No. 306, Penalty for Underpayment of Estimated Tax
New Jersey mirrors the structure. The state requires at least 80% of the current year’s tax or 100% of the prior year’s tax, and the prior-year figure jumps to 110% if your taxable gross income tops $150,000.8New Jersey Division of Taxation. Notice on Estimated Tax Payments
Federal estimated payments are due April 15, June 15, September 15, and January 15 of the following year.9Internal Revenue Service. Individuals – Estimated Tax If you claim a big prize, calculate your remaining liability right away and make an estimated payment in the same quarter you received the money. Pushing the shortfall to the next deadline when you already know it exists is an avoidable mistake.
Lump Sum or Annuity
Every major jackpot comes with a choice: take a reduced lump sum now, or receive annual payments spread over roughly 30 years. The tax rates are similar either way, but the timing is very different.
The lump sum crams the entire present value of the prize into one tax year. On a $100 million advertised jackpot, the cash option might be around $50 million, and almost all of it gets taxed at the top federal and state rates. The combined marginal rate near 48% applies to nearly the whole payout.
The annuity breaks a $100 million prize into roughly $3.3 million annual installments. Each payment still lands in the top brackets, so the per-dollar tax rate ends up close to the lump sum’s. What the annuity changes is flexibility. If you have deductions, charitable giving plans, or other strategies to reduce taxable income year by year, those apply to each annual payment rather than being swallowed by one giant tax year. It also protects you from making the largest estimated-tax miscalculation of your life in a single April.
Lump-sum winners trade that spread for control over the money and the chance to invest the after-tax proceeds immediately. Neither path meaningfully reduces the total tax rate.
If You Don’t Live in New Jersey
If you bought your winning ticket in New Jersey but live elsewhere, the state still taxes the prize. The $10,000 threshold and the same withholding rates apply to non-residents.3New Jersey Department of the Treasury. Division of Taxation – Lottery and Gambling Winnings10Legal Information Institute. New Jersey Administrative Code 18:35-7.6 – Gambling Winnings Subject to Withholding
Most states let you claim a credit on your home-state return for income taxes paid to another state, which prevents double taxation on the same dollars. The specifics depend on where you live. If your home state has no income tax, you pay New Jersey and stop there. If your state’s rate is higher than New Jersey’s, you may owe the difference at home. Keep documentation of what New Jersey withheld and what you paid on the New Jersey non-resident return so you can claim the credit.
Lottery Pools
If several people chip in on tickets together, the person who physically claims the prize can end up taxed on the whole amount unless the group documents the arrangement properly. The IRS treats the claimant as the sole winner by default.
The fix is IRS Form 5754. The person collecting the prize uses it to identify each member of the winning group, and the lottery then issues individual W-2G forms for each person’s share.11Internal Revenue Service. About Form 5754, Statement by Person(s) Receiving Gambling Winnings Each participant then pays tax only on their portion.
A written agreement signed and dated before the drawing, naming every participant and spelling out how costs and winnings are divided, makes the process cleaner. Without one, splitting the money after the fact can look like a chain of taxable gifts from the claimant, which pulls in a separate set of rules.
What Doesn’t Cut the Bill Much
A couple of commonly suggested workarounds offer less than winners expect.
The state and local tax (SALT) deduction lets you deduct state income taxes on your federal return if you itemize. For 2026, the cap is $40,000 for most filers, but it phases down once modified adjusted gross income exceeds $500,000 and bottoms out at $10,000.12Internal Revenue Service. Topic No. 503, Deductible Taxes Any lottery winner with a prize worth planning around will have income far above $500,000, so the deduction shrinks toward the floor. On a $5 million prize with over $500,000 of state tax owed, writing off $10,000 is a rounding error.
New Jersey also allows winners to keep their identity private, under a law signed by Governor Phil Murphy that exempts winners’ names and addresses from the state’s open records laws. You still have to identify yourself to lottery officials and for IRS reporting, but your name stays out of the public record. Some winners add a layer by claiming through a trust. A trust can serve privacy and estate purposes, but it does not reduce income tax on the prize itself; the winnings remain taxable to whoever ultimately receives them.