California Lottery Taxes in 2026: What You Owe

Written by Eric Ridley, California lottery lawyer and estate planning attorney, Ridley Law. Last reviewed September 28, 2026.

California doesn’t tax a prize from the California Lottery, including Powerball and Mega Millions tickets bought here (Gov. Code, § 8880.68). The IRS does. The Lottery withholds 24% federal, but a large prize is taxed mostly at 37%, so on a big jackpot you keep roughly 63% of the cash option and owe the difference next April. Lottery winnings from other states are taxable to California residents.

I’m an estate planning attorney, and I’m not a CPA. Every plan I build for a winner sits on top of these numbers, so I work with them constantly. The return itself belongs to a CPA or enrolled agent.

If you want to run your own numbers first, the California lottery tax calculator does the arithmetic below for any prize amount.

California doesn’t tax a California Lottery prize

The exemption comes from the initiative that created the Lottery in 1984. Government Code section 8880.68 says no state or local taxes may be imposed on the sale of lottery tickets, on any prize awarded by the lottery, or on amounts a winner receives under an assignment authorized by section 8880.325. The only carve-out is property taxes and license fees on a noncash prize, which is how the state still collects registration on a car you win.

The Franchise Tax Board reads it the same way: “We do not tax winnings from the California Lottery, including SuperLotto, Powerball, and Mega Millions.” On the return, the Schedule CA instructions tell you to subtract the California Lottery winnings that are included in your federal income.

So the Lottery withholds nothing for the state, and you owe nothing to the state on the prize. That holds whether you take the cash option or the annuity, and it holds for every annual payment for the life of the annuity.

It covers the prize, not what the prize earns. Once the money is invested, the interest, dividends, and capital gains are ordinary California income. California residents are taxed on all income from all sources (FTB Pub. 1031), and there’s an extra 1% on taxable income over $1 million on top of the regular rates (Rev. & Tax. Code, § 17043). A winner living off an invested jackpot will usually pay that surcharge every year.

It covers the California Lottery and nothing else. Which brings us to tickets bought somewhere else.

Lottery winnings from other states are taxable in California

If you live in California and win on a ticket bought in another state, California taxes it. The Schedule CA (540) instructions say so directly: make no adjustment for lottery winnings from other states, because “They are taxable by California.” The FTB’s gambling page lists lotteries, raffles, horse races, and casinos as taxable gambling income, with the California Lottery as the one exception.

The same Powerball ticket can be tax-free or fully taxable to a Californian depending on which side of the state line it was bought on.

If the other state also taxes the prize, California may give you a credit for tax paid to that state on income sourced there (Rev. & Tax. Code, § 18001(a)). The credit has conditions, including that it’s unavailable where the other state already credits California tax, and working out which state gets the first bite is squarely a CPA question.

If you don’t live in California and win on a California ticket

California still doesn’t tax it. Section 8880.68 bars state taxes on “any prize awarded by the lottery,” and it says nothing about where the winner lives. California taxes nonresidents only on California-source income in any event (FTB Pub. 1031), and this prize is exempt from California tax for everyone.

Your home state is a different question. Whether Oregon, Nevada, or New York taxes a prize its resident won in California is governed by that state’s law, and I don’t advise on it. Ask a CPA in your state before you assume the California exemption follows you home.

If you are neither a U.S. citizen nor a resident alien, the federal withholding is higher. The Lottery’s Winner’s Handbook says claimants who check that box on the claim form “will have 30% withheld from all prizes,” which matches the IRS rule for gambling winnings paid to foreign persons under IRC §§ 1441 and 1442. You don’t need to be a citizen to claim a prize. You do need a CPA who handles international returns.

Moving to or from California around the claim

I get this question from both directions, and the answer for a California ticket is short: moving doesn’t change anything, because the prize isn’t taxed by California no matter where you live. Leaving the state to save state tax on a California Lottery prize saves you nothing.

For a ticket bought in another state, residency matters a great deal, and the rules are less intuitive than people hope.

Who counts as a resident. A California resident is anyone in the state for other than a temporary or transitory purpose, and anyone domiciled here who is away for a temporary or transitory purpose (Rev. & Tax. Code, § 17014). Selling the house and moving in fact is one thing. Renting an apartment in Nevada for the month you claim is another, and the FTB looks at where your closest connections are, not at the address on the claim form.

Part-year residents. The FTB’s rule is that part-year residents are “taxed on all income received while a resident and only on income from California sources while a nonresident” (FTB Pub. 1031). If you move to California and then receive an out-of-state prize, expect California to treat it as taxable. If an out-of-state annuity keeps paying after you move here, expect each payment received while you’re a resident to be taxable here.

Timing. Change-of-residency cases have their own accrual rules for income that was earned before the move and received after it, and a lottery prize won in one year and claimed in another is exactly the kind of fact pattern where those rules get argued. I’m not going to tell you how that comes out on your facts, because it depends on dates and documents I don’t have. Get a CPA’s written opinion before you move for tax reasons, and assume the FTB will ask about it.

If you’re newly arrived, what changes when you move to California covers the estate planning side.

Federal tax: the prize is ordinary income

The IRS treats a lottery prize as ordinary income in the year you receive it. There’s no special lottery rate and no capital gains treatment. A cash option is taxed in the year it’s paid. An annuity is taxed payment by payment, each year’s installment in the year you receive it.

Here are the 2026 brackets for a single filer, from Rev. Proc. 2025-32, which set the 2026 figures after the One Big Beautiful Bill Act.

Taxable income (single, 2026)	Rate on income in this band
Up to $12,400	10%
$12,400 to $50,400	12%
$50,400 to $105,700	22%
$105,700 to $201,775	24%
$201,775 to $256,225	32%
$256,225 to $640,600	35%
Over $640,600	37%

The standard deduction for a single filer in 2026 is $16,100, and $32,200 for a married couple filing jointly. For joint filers the 37% bracket starts at $768,700.

Why the 24% withholding comes up short

When the prize, minus the price of the ticket, exceeds $5,000, the Lottery has to withhold federal tax (IRC § 3402(q)). The rate is set by statute at the third-lowest bracket rate, which in 2026 is 24%. The IRS instructions for Form W-2G put it plainly: “Withhold 24% of the proceeds (the winnings minus the wager).”

Twenty-four percent is a withholding rate. It isn’t your tax rate. On any prize large enough to change your life, most of the money is taxed at 37%, and the gap is yours to pay.

What a $1 million, $10 million, and $100 million prize actually costs

The table below is illustrative. It assumes a single filer, a California ticket, a cash prize paid in 2026, no other income, the $16,100 standard deduction, and it ignores the price of the ticket. Your numbers will differ if you’re married, have other income, itemize, or give to charity.

Cash prize	Federal withheld (24%)	Approx. federal tax owed	Still due in April	California tax on the prize	Left after federal tax
$1,000,000	$240,000	$320,000	$80,000	$0	$680,000
$10,000,000	$2,400,000	$3,650,000	$1,250,000	$0	$6,350,000
$100,000,000	$24,000,000	$36,950,000	$12,950,000	$0	$63,050,000

How the $10 million line works: taxable income is $10,000,000 less $16,100, or $9,983,900. Tax is $192,979.25 on the first $640,600, plus 37% of the remaining $9,343,300, which comes to about $3,650,000. The Lottery withheld $2,400,000. The other $1,250,000 is due with the return.

Two things about “Powerball winnings after taxes” that the headlines skip. First, the advertised jackpot is the annuity figure. The cash option is smaller, and the table starts from the cash number. Second, on a California ticket the effective federal rate on a large prize runs just under 37%, with no state tax on top, so a Californian keeps roughly 63 cents of every cash-option dollar. A winner in a state that taxes lottery prizes keeps less. The lump sum versus annuity page covers how the choice between the two changes the tax picture.

That $1,250,000 is the number that ruins people. Move it into a separate account the week the prize arrives and leave it there until April.

The paperwork: Form W-2G and Form 5754

The Lottery reports your prize to the IRS on Form W-2G. For payments made in calendar year 2026, the IRS instructions set the reporting threshold at $2,000, adjusted for inflation each year after 2025. For lottery prizes, the winnings also have to be at least 300 times the wager. The old $600 figure is gone.

The Handbook says the Lottery mails your W-2G by January 31 for the prior year. Keep it with your return, and keep your address current with the Lottery’s tax unit if you move.

Groups. Form 5754 is how a group splits the tax. The IRS instructions describe it as the form used when the person receiving the winnings isn’t the actual winner or is one of two or more people sharing the winnings. The Handbook says the group representative should have each member complete it, and that it must be filed with the Lottery by December 31 of the year the prize was paid, after which the Lottery issues each member a W-2G.

If the group doesn’t do this, the representative gets one W-2G for the whole prize, pays tax on all of it, and then hands out shares that look like gifts. Getting the ownership documented before the claim avoids that, and the lottery pool agreement page walks through how.

Estimated tax and the underpayment penalty

Federal tax is pay-as-you-go. If you don’t pay enough during the year through withholding and estimated payments, the IRS adds a penalty (IRC § 6654). The four installments for 2026 are due April 15, June 15, September 15, and January 15, 2027.

There’s a safe harbor that matters a great deal for winners. You avoid the penalty if what you paid during the year is at least the smaller of 90% of this year’s tax or 100% of last year’s tax. If last year’s adjusted gross income was over $150,000, the prior-year figure is 110% (IRC § 6654(d)(1)).

For most winners, last year’s tax was modest. And withholding is treated as paid in equal parts on each installment date regardless of when it was actually withheld (IRC § 6654(g)(1)). So the 24% the Lottery withholds will often cover the prior-year safe harbor by itself, and there’s no penalty even though a large balance is still due.

The safe harbor protects you from a penalty. It doesn’t reduce the tax. The balance is due April 15, 2027 on a 2026 prize, and interest runs if you pay late.

Losing tickets and the new 90% rule

Gambling losses are deductible only if you itemize, and only up to your gambling winnings. Starting in 2026, the One Big Beautiful Bill Act cut the federal deduction to 90% of your losses. The statute now says the deduction “shall be equal to 90 percent of the amount of such losses” and is allowed “only to the extent of the gains from such transactions” (IRC § 165(d)(1)).

For a jackpot winner the dollars here are small. Your losing tickets for the year are a rounding error against the prize.

California is different in two ways. California Lottery losses aren’t deductible on the California return at all, which follows from the winnings not being taxed here (2025 Schedule CA (540) instructions). And California conforms to the Internal Revenue Code as of a specified date, which for 2025 and later years is January 1, 2025 (Rev. & Tax. Code, § 17024.5). The 90% rule was enacted after that date, so California doesn’t follow it unless the Legislature adopts it. Ask your CPA to confirm the current state of conformity before you file.

Charitable giving in the win year

If you intend to give money to charity at any point, the year the prize is paid is usually the year to do it. Your income is taxed at 37% that year, and a deduction is worth the most against that income.

The limits for 2026:

Cash to a public charity is deductible up to 60% of adjusted gross income (IRC § 170(b)(1)(G)). Anything over that carries forward for five years (IRC § 170(d)(1)).

Cash to a private foundation is generally limited to 30% of adjusted gross income (IRC § 170(b)(1)(B)).

The new 0.5% floor. Starting in 2026, charitable contributions are deductible only to the extent they exceed 0.5% of your contribution base, which is generally your adjusted gross income (IRC § 170(b)(1)(I)). On a $10 million income, the first $50,000 of giving produces no deduction.

The 35% cap for top-bracket itemizers. Also new for 2026, itemized deductions are reduced by 2/37 of the lesser of your itemized deductions or the amount by which your income exceeds the start of the 37% bracket (IRC § 68(a)). In practice, a dollar of deduction that used to save 37 cents now saves about 35.

Putting those together, illustratively: a single winner with $10 million of income who gives $1 million in cash to a public charity loses the first $50,000 to the floor, and the remaining $950,000 saves roughly $332,500 in federal tax after the § 68 reduction. Before 2026 the same gift would have saved about $370,000. The deduction is smaller than it was, and it’s still the largest one most winners will ever take.

Donor-advised funds. A donor-advised fund lets you make the gift, and take the deduction, in the win year, then recommend grants to specific charities over the following years. The fund is held by a sponsoring organization that can’t be a private foundation (IRC § 4966(d)(1)), so cash gifts to it generally get the 60% limit. You need a written acknowledgment from the sponsor that it has exclusive legal control over what you contributed (IRS Pub. 526). The gift has to be complete by December 31 of the year you want the deduction. What people get right and wrong about donor-advised funds covers the tradeoffs, and charitable remainder trusts cover the version where you keep an income stream.

Gifts to family are a different animal. They aren’t deductible, and above $19,000 per person in 2026 they need a gift tax return (Rev. Proc. 2025-32). See giving lottery money to family and gift tax in 2026.

The SALT deduction

The federal deduction for state and local taxes is capped at $40,400 for 2026. The cap shrinks by 30% of modified adjusted gross income above $505,000, but not below $10,000 (IRC § 164(b)(7); IRS correction to 2026 Form 1040-ES). Any prize large enough to matter puts you well past the point where the cap bottoms out at $10,000.

For a winner on a California ticket, this rarely matters in the win year. You owe California no income tax on the prize, so there’s little state income tax to deduct. It matters more for a Californian who wins on an out-of-state ticket, pays California tax on it, and finds that almost none of that California tax is deductible federally.

I’m not a CPA. Hire one.

Everything above is how I think about the tax side while designing a winner’s estate plan. None of it replaces a CPA or enrolled agent who prepares and signs your return.

Hire someone who has handled a windfall year before, who will model the cash option against the annuity on your real numbers, run the estimated payments, and file the gift tax returns. The Lottery’s own Handbook suggests interviewing several CPAs and hiring your attorney, accountant, and investment adviser from different firms so they act independently. I agree with that advice.

If you’re still deciding who else you need, the lottery lawyer page covers what the legal side does and doesn’t do, and what to do if you win the lottery in California is the full sequence.

Questions I get asked

Does California tax lottery winnings?

Not California Lottery prizes. Government Code section 8880.68 bars state and local taxes on any prize awarded by the California Lottery, including Powerball and Mega Millions tickets bought in California, and the Lottery withholds no state tax. Lottery and gambling winnings from other states are taxable to California residents, and the income you earn by investing a California prize is taxable here like any other investment income.

How much is a Powerball jackpot after taxes in California?

On a large jackpot bought in California, figure about 63% of the cash option. The advertised jackpot is the annuity amount, so start from the smaller cash figure. The Lottery withholds 24% federal, the actual federal rate on a large prize runs close to 37%, and California adds nothing on the prize. The difference between 24% and 37% is due with your federal return the following April.

Do you pay state tax on lottery winnings in California if you bought the ticket in another state?

Yes, if you’re a California resident. The FTB’s Schedule CA instructions say to make no adjustment for lottery winnings from other states because they are taxable by California. You may get a credit for tax paid to the other state (Rev. & Tax. Code, § 18001), subject to conditions your CPA should check.

Why is only 24% withheld when I’m in the 37% bracket?

Because the withholding rate is fixed by statute at the third-lowest bracket rate, which is 24% in 2026 (IRC § 3402(q)). It applies to every prize over $5,000 regardless of size. The Lottery doesn’t know your other income or filing status. On a $10 million cash prize, the illustrative shortfall for a single filer is about $1,250,000.

When does the Lottery issue a W-2G?

For 2026 payments, a W-2G is required when lottery winnings reach $2,000 and are at least 300 times the wager, under the IRS’s inflation-adjusted threshold. The Lottery mails it by January 31 of the following year. Prizes over $5,000 also have 24% federal tax withheld.

Will I owe a penalty for underpaying estimated tax?

Often not, if last year’s tax was modest. You avoid the penalty if withholding and estimates cover the smaller of 90% of this year’s tax or 100% of last year’s, or 110% if last year’s AGI topped $150,000 (IRC § 6654(d)). The Lottery’s withholding frequently satisfies the prior-year test by itself. You still owe the full balance by April 15.

Can I deduct my losing lottery tickets?

Federally, only if you itemize, only up to your gambling winnings, and starting in 2026 only 90% of the losses (IRC § 165(d)). On the California return, California Lottery losses aren’t deductible, because California Lottery winnings aren’t taxed here. For a jackpot winner the amount involved is small.

Should I move out of California to avoid tax on my winnings?

Not for a California Lottery prize. California doesn’t tax it no matter where you live, so moving saves nothing. For an out-of-state ticket, residency matters, and California looks at your closest connections rather than a change of address (Rev. & Tax. Code, § 17014). Get a CPA’s written opinion before you move for tax reasons.

Read this before you act on anything above

This is general information, not legal or tax advice. Reading it doesn’t make you my client, and I don’t know your facts. Filing status, other income, residency, and the size and timing of the prize all change the answers.

Tax preparation is not my practice. I’m not a CPA or enrolled agent. The worked example is illustrative arithmetic on stated assumptions, not a tax projection. Hire a CPA or enrolled agent before you claim, and rely on their numbers over mine.

Tax figures are for 2026 and they move. The brackets, standard deduction, SALT cap, W-2G threshold, and gift exclusion are adjusted annually, and the OBBBA provisions on gambling losses, charitable giving, and itemized deductions are new. California’s conformity to federal changes is decided by the Legislature and can change.

Lottery rules are the Lottery’s. The regulations cited here are the Commission-approved edition dated June 16, 2026. Confirm forms and deadlines with the California Lottery directly.

Ridley Law, Eric Ridley, California Bar No. 273702. Practice limited to estate planning, trust administration, and uncontested probate, serving Ventura, Santa Barbara, and Los Angeles counties. This is attorney advertising.

How Lottery Winnings Are Taxed in California (2026)