Lottery Taxes


A lottery is a game in which numbers are drawn at random and prizes are awarded to those who purchase tickets. Historically, lotteries have also been used as a method of raising public funds. State governments establish and regulate lotteries and often employ special departments to select retailers, train their employees to operate the terminals, promote games and sell tickets. Some state departments even administer the jackpot prizes. But does this promotion of gambling have negative consequences for the poor, problem gamblers, or for society in general?

Whether you win the jackpot or not, a large proportion of your winnings will be taken in federal and state taxes. If you choose a lump sum prize, you’ll get your money immediately; with an annuity, you’ll receive payments over time.

The word “lottery” derives from Middle Dutch loterije, which probably means ‘drawing lots’ and may be a calque of Middle French loterie (which itself was derived from Old English lotinge, referring to the act of drawing lots). Certainly, the first recorded use of the term for this purpose was in the Low Countries in the 15th century, when towns held lotteries to raise funds for town fortifications and help the needy.

Lottery supporters argue that the profits from this gambling are a necessary and appropriate supplement to state government revenue and are therefore an acceptable form of taxation. However, they tend to ignore that lottery revenues are a small fraction of state budgets and the objective fiscal condition of states does not appear to have much bearing on whether or when a lottery is established.