The Real Tax Bill Behind Billion-Dollar Lottery Wins

The news that somebody has won the September 2025 Powerball jackpot shook the world. Two lucky people, who bought the tickets in Texas and Montana respectively, have just won $1.787 billion, one of the largest lottery prizes in U.S. history. However, once the dust settled and reality kicked in, it turned out that the winners wouldn’t get all that money. In fact, they could end up with less than a third of it once the government takes its share.

The advertised jackpot shrank to about $770.3 million when taken as a lump sum, dropped again after the mandatory 24% federal withholding, and could fall to roughly $485 million once the final tax bill is settled. While the amount still represents generational wealth, the difference between the winnings and take-home amount is staggering. It reignited the age-old debate about taxes and how justified the IRS’s actions are. While that is a valid point, perhaps the question instead should be why aren’t we taxing the billionaires like we do lottery winners, but that is a different issue.

This gap between headline winnings and real payouts also sparked a recurring question: why do lottery winners appear to pay so much more in taxes than casino players and other gamblers?

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Why Lottery Winners Seem to Pay So Much More in Taxes

Even though both lottery wins and casino winnings are treated as taxable income in the United States, the way the tax system handles each type of windfall creates very different outcomes. It creates an illusion that these winnings are taxed at a different rate, which isn’t true. It is a combination of withholding rules, income brackets, and the sheer size of modern jackpots that creates these drastic differences. Once you look at how the system is structured, the reason lottery winners appear to lose far more to taxes than casino players becomes easier to understand.

The first big difference is the way the IRS handles withholding. For both lottery wins and gambling proceeds, the federal government requires an automatic 24 percent withholding on large payouts. In practice, this withholding is only a down payment on the final tax bill, not the full amount owed. For casino games, the system is very flexible, with some games not requiring withholding at all.

Lottery winnings, however, are treated differently. State lotteries withhold the full 24 percent federal share automatically on large prizes, with no exceptions, and many states with their own income taxes withhold additional amounts. With massive winnings often in hundreds of millions or even more, the tax bill can easily reach some amazing amounts. The truth is that the IRS doesn’t single out lottery winners; it is simply a matter of math and tax code.

Lump Sum Payouts Push Winners Into the Highest Bracket

Lump sum payouts also help create an illusion that lottery winners are taxed differently. When a player chooses a lump sum payout instead of an annuity, as most of them do, they automatically land in the highest tax bracket. With an annuity, the tax burden is spread out for the duration of the payments.

Casino winners rarely, if ever, hit the nine-figure payouts. This goes for crypto casino players as well. Unless you have an amazing night at a casino and win a staggering amount of Bitcoin, you will never be forced to pay anything remotely similar in taxes as lottery winners. There is also a stipulation that states casino winners must self-report any winnings themselves, a step sometimes overlooked by crypto casino players.

The illusion that lottery winners pay so much more in taxes than casino players is just that – an illusion. The truth is that they are both subjected to the same IRS rules, but the nature of lottery wins makes them stand out. The situation looks even more dramatic when lottery winners opt for a lump sum payout, which most of them do.

The Real Tax Bill Behind Billion-Dollar Lottery Wins