Massachusetts Lottery Taxation: Rates, Withholding, and Deductions

Massachusetts lottery tax runs 5% at the state level on every dollar of winnings, with an additional 4% surtax on any taxable income above roughly $1 million. Federal tax treats the prize as ordinary income, taxed at your marginal rate up to 37%, with 24% withheld at payout on prizes over $5,000. On a large jackpot, the combined state and federal bite typically lands somewhere between 35% and 40% of the prize.

State and Federal Rates on Lottery Winnings

Massachusetts treats all lottery winnings as taxable income at a flat 5% rate, whether the prize is $50 on a scratch ticket or $50 million on Mega Millions. There is no reduced rate or exemption for gambling income.¹

Federally, lottery winnings are ordinary income taxed at your marginal bracket. The top federal bracket for 2026 is 37%, and a large prize can easily push a winner into it. The 24% withheld at payout often falls short of the final federal bill for winners in higher brackets, so you may owe more when you file.²

The 4% Surtax on Large Prizes

Since 2023, Massachusetts has imposed a 4% surtax on taxable income above an annually adjusted threshold. For tax year 2025, that threshold is $1,083,150. The 2026 figure has not yet been published but will rise with cost-of-living changes.³ A winner whose taxable income crosses that threshold pays 9% to Massachusetts on the portion above it. On a $3 million prize, the surtax alone adds roughly $76,000 in state tax.

Put together, a Massachusetts resident who wins a $2 million lump sum with no other significant income pays 5% at the state level up to the surtax threshold and 9% above it. Federally, the prize fills up each bracket from the bottom, with the highest slice taxed at 37%. Smaller prizes that keep total income below the surtax threshold face only the flat 5% state rate plus whatever federal bracket they push into.

What Gets Withheld Before You’re Paid

The Lottery doesn’t hand you the full prize and let you sort out taxes at filing time. For any prize of $600 or more, 5% of the entire payment is withheld for state income tax. The withholding applies to the whole prize amount, not just the portion above $600.⁴ For prizes over $5,000, another 24% comes off for federal tax.²

Tax is only the first deduction. Before you see a check, the Lottery Commission runs your name through state databases and pays out in a set order:⁵

State and federal tax withholding first, at the rates above.
Past-due child support next, satisfied in full or in part from what remains.
Past-due state tax liability after that.
Other state debts through the Comptroller’s Intercept Program, which applies to prizes over $600.⁶

Whatever survives all of that is what you actually take home. A winner with significant back taxes or child support arrears can watch a large prize nearly disappear before it reaches them.

Deducting Ticket Costs on Your Massachusetts Return

Massachusetts rules differ sharply from federal rules here, and this is where winners make expensive mistakes. On a federal return, if you itemize, you can deduct gambling losses up to the amount of your winnings. Massachusetts does not follow that rule.⁵

On your Massachusetts return, you can deduct only the cost of the specific winning ticket. If you spent $2,000 on lottery tickets over the year and won on a single $10 ticket, your state deduction is $10, not $2,000. Every losing ticket is irrelevant for state tax purposes.⁵

One narrow exception exists. Losses at a licensed Massachusetts casino operating under MGL Chapter 23K can be deducted against winnings from those same licensed establishments. The exception does not extend to lottery tickets, online wagering, out-of-state casinos, or any other form of gambling.⁴

Lump Sum Versus Annuity

For prizes of $1 million or more, the Massachusetts Lottery generally offers a choice between a single lump-sum payment and an annuity. Most Massachusetts Lottery annuities run 20 years. Powerball and Mega Millions use a 30-year schedule. The lump sum is always smaller than the advertised jackpot because it reflects the present cash value rather than the full annuity total.

Tax-wise, the difference is bracket management. A lump sum drops the entire prize into a single tax year, almost certainly triggering the top federal bracket and the Massachusetts 4% surtax. An annuity spreads the income across 20 or 30 years, which can keep each annual payment below the surtax threshold and in a lower federal bracket. Over two decades, that difference can be worth hundreds of thousands of dollars.

The tradeoff is control. A lump sum lets you invest immediately, and strong returns can outpace the tax savings of an annuity. You also carry the risk of mismanaging the money or facing future rate increases that reduce the annuity’s advantage. The math is worth running with a tax professional before you commit.

Reporting Your Winnings

For any prize over $600, the Lottery issues a Form W-2G showing the amount won and the taxes withheld. If you don’t get it at payout, the Lottery must send it by January 31 of the following year.⁵ A copy also goes to the Department of Revenue and the IRS, so both agencies already know what you won before you file.

Net winnings (total prize minus the cost of the winning ticket) go on your Massachusetts Form 1 or Form 1-NR/PY, Schedule X, Line 3. On the federal side, lottery winnings appear on Form 1040 as other income. Prizes below $600 that don’t generate a W-2G are still taxable. No form does not mean no tax.

Group Wins and Form 5754

Office pools and family groups need an extra step. When the person claiming the prize is not the sole winner, the claimant completes IRS Form 5754, listing each member of the group with their share and taxpayer identification number. The payer uses that information to issue a separate W-2G to each member for their portion.⁷

Skip this and the IRS treats the entire prize as income to whoever claimed it. That person then has to prove they distributed shares, and the recipients could face gift-tax questions on the money they received. Handle the paperwork at the time of the claim.

Residents, Nonresidents, and Out-of-State Wins

Massachusetts residents owe state tax on all lottery winnings regardless of where the ticket was purchased. If you live in Massachusetts and win in another state, that income goes on your Massachusetts return.

Nonresidents are taxed on Massachusetts-source winnings, including Massachusetts Lottery tickets and Powerball or Mega Millions tickets bought in the state.⁵ The 5% state withholding applies to nonresidents the same way it applies to residents.⁴ Nonresidents with Massachusetts-source income exceeding $8,000, or exceeding their personal exemption ratio, must file Form 1-NR/PY to report those winnings.⁸

A Massachusetts resident who wins in another state and pays income tax there can claim a credit on the Massachusetts return to avoid double taxation. The credit equals the lesser of the tax actually due to the other state or the portion of Massachusetts tax attributable to that income. Complete the Form 1 Worksheet for Taxes Due Any Other State along with Schedule OJC.⁹

The credit covers taxes paid to other U.S. states, U.S. territories, the District of Columbia, and Canadian provinces. It does not cover federal tax, taxes paid to foreign countries other than Canada, or any local or city taxes. Use the tax calculated as due to the other jurisdiction, not the amount withheld, since the two figures can differ.⁹

Penalties for Not Reporting

The Department of Revenue does not have to hunt for unreported lottery income. The Lottery Commission reports every prize over $600 directly to the DOR, so a mismatch is caught quickly. The consequences scale with the nature of the failure.

Late filing or late payment carries a charge of 1% of the unpaid tax per month, up to 25%. Negligence or substantial underpayment triggers a flat 20% penalty on the underpaid amount. A return the DOR determines to be fraudulent can face a penalty of up to double the tax owed.¹⁰

Interest compounds on top. Estimated tax underpayment carries interest at the federal short-term rate plus four percentage points. If a federal amended return or an IRS adjustment changes your federal income, Massachusetts requires you to report that change within a set timeframe; missing it adds a separate 10% penalty on the additional state tax owed.¹⁰

Claiming a Prize Through a Trust

Massachusetts allows lottery winners to claim prizes through a trust, which keeps the winner’s name out of public records. The trust becomes the named claimant, and the trustee collects the winnings on behalf of the beneficiaries. A trust does not reduce the tax bill. Tax obligations still flow through to the individuals who ultimately receive the money. Given the legal complexity, structure the trust with an estate-planning attorney before walking into lottery headquarters, not after.

1
Massachusetts Department of Revenue. TIR 79-6 – Income Taxation of Gambling Winnings
2
Internal Revenue Service. Instructions for Forms W-2G and 5754
3
Mass.gov. Massachusetts 4% Surtax on Taxable Income
4
Massachusetts Department of Revenue. TIR 15-14 – Income Tax Withholding and Reporting Rules for Certain Gambling Income
5
Mass.gov. Massachusetts Tax Information for Gambling and the Lottery
6
Office of the Comptroller. Intercept
7
Internal Revenue Service. About Form 5754, Statement by Person Receiving Gambling Winnings
8
Department of Revenue. 2025 Form 1-NR/PY Instructions
9
Mass.gov. Learn About the Income Tax Paid to Another Jurisdiction Credit
10
Mass.gov. Massachusetts Tax Penalty Rates