Over $5,000, not at
Federal withholding applies to proceeds over $5,000, not at $5,000.
The short answer
Proceeds, not prize
Proceeds means the prize less the cost of the winning ticket, so a $5,000 prize is generally under the line.
Still fully taxable
Withheld or not, the full amount is taxable and reported.
00A dollar either side
Where proceeds fall against the $5,000 line
Only the winning ticket comes off, not the others you bought that week and not your losses for the year.
Prize
Ticket
Proceeds
$5,000
$5
$4,995under
$5,002
$5
$4,997under
$5,010
$5
$5,005over — 24% withheld
The threshold is over $5,000, and it is measured on proceeds rather than on the prize.
Most-asked question
Most explanations state the threshold incorrectly
$5,000 is the point where the withholding rules change, and most explanations state the threshold incorrectly. The wider picture is on our page on New York lottery tax.
01Over, not at
Why the threshold is over $5,000, not at $5,000
Federal withholding applies to proceeds over $5,000. Proceeds means the prize less the cost of the winning ticket only.
- Over, not at. A prize producing exactly $5,000 of proceeds does not cross the line. It has to exceed it.
- The ticket price comes off first. A $5,010 prize on a $5 ticket is $5,005 of proceeds, over the line. A $5,002 prize on the same ticket is $4,997, under it.
- Only the winning ticket counts, not the others you bought that week and not your losses for the year.
- Installments do not help. A prize paid over years is tested on the total, not the annual payment.
- Groups are tested as one. A $6,000 prize split four ways is a $6,000 prize for this test, not four prizes of $1,500.
02Reporting vs withholding
Reporting and withholding are two different rules
Two tests, two triggers. One can apply without the other.
Reported on a Form W-2G
Both must be true:
- •Winnings are $600 or more
- •Payout is at least 300× the wager
24% withheld
Proceeds over $5,000.
Proceeds means the prize less the cost of the winning ticket.
Assume the IRS has a copy either way, and report the income whether or not you receive a form.
Reporting test, worked
$5,000 prize on a $5 ticket
= 1,000× the wager
Reported
$1,000 prize on a $5 ticket
= 200× the wager
Below the federal test
Payers often report more broadly than the rule requires. Assume the IRS has a copy either way.
03Withheld or not
What you owe whether or not tax is withheld
The withholding question changes when you pay, not how much.
Withheld at the counter
You take the net
You receive the prize less 24 percent federal, 10.9 percent state and any city tax. The rest settles on your return.
Nothing withheld
You take the gross, owe later
You receive the full prize and owe the whole amount with your return. Same tax, later date, and nothing set aside.
At this size the difference between the 24 percent withholding and your real rate is usually small, which is why a $5,000 win rarely produces the April bill that a large prize does. The gap grows with the prize.
If you are not a New York resident, a New York Lottery prize with proceeds over $5,000 is still subject to New York State tax, reported on Form IT-203. City tax applies to city residents only.
04No planning available
Why you cannot plan around the $5,000 threshold
Nothing to plan
You cannot choose your proceeds and you cannot split a ticket after the draw to fall under a threshold. Anyone suggesting otherwise is describing something the Gaming Commission and the IRS will both disallow.
Check which side of the line you are on before you claim, so the amount you walk out with is the amount you expected.
05FAQ
Frequently asked questions
Is a $5,000 lottery ticket taxed?
Yes, in full. Whether anything is withheld at the counter is a separate question from whether you owe tax, and the answer to the second is always yes.
Why does nothing get withheld on exactly $5,000?
The rule says over $5,000, and it measures proceeds rather than the prize. A $5,000 prize on a paid ticket is under $5,000 of proceeds, so it falls short on both counts.
What is the difference between the prize and the proceeds?
Proceeds is the prize less what you paid for that winning ticket. It is the figure every threshold in the system is measured against.
Will I get a W-2G for a $5,000 win?
Almost certainly. The reporting test is $600 and 300 times the wager, and a $5,000 prize on an ordinary ticket clears both comfortably.
Can I avoid the threshold by splitting the ticket?
No. The test applies to the whole prize before any split, and rearranging it after the draw does not change the amount that was won.
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Reviewed by George Dimov, CPA, New York, NY. Serving clients in all 50 states, 15+ years advising New York taxpayers. President of George Dimov, CPA, a New York City firm serving clients across the five boroughs and nationwide.