Taxes and the Lottery

A lottery is a game in which numbers are drawn at random for a prize. Some governments outlaw lotteries while others endorse them and regulate them to some extent. Privately organized lotteries are also common and can be used to raise money for products or property. In colonial America, for example, lotteries were a popular means of financing public projects. They helped build Harvard, Dartmouth, Yale, King’s College (now Columbia), Union and William and Mary colleges. They also financed roads, canals, bridges, churches and other infrastructure.

Early examples of lotteries in Europe are found in 15th-century Burgundy and Flanders, where towns raised funds to fortify defenses or aid the poor by distributing prizes among those purchasing tickets. The word lottery is from French loterie, itself a borrowing from Frankish or Old Dutch lotta “lot, share, portion, reward,” cognate with Old English hlot and Germanic lotte, löte.

If you win the lottery, the prize money is often awarded in a lump sum, after fees and taxes are deducted. For example, if you win $10 million in the US Powerball lottery, you will receive about $2.5 million after federal and state taxes are taken out. Some people try to increase their odds by using a variety of strategies, though these will likely only improve their chances by a small margin. Some people even sell their lottery payments, or annuities, to avoid large tax bills all at once. Whether you play the lottery or not, be aware that winning big can quickly turn into a tax nightmare.