That rollover jackpot is getting huge again, which tends to get people thinking creatively about what happens if you buy a Powerball ticket in another state… i.e. typically, can you escape paying your own states higher tax rate!?
Before I get into this, let’s be really clear and get this out the way:-
1. Are You Allowed To Buy A Ticket In Another state?
There’s no rule against it. If you’re on vacation in another state, you can play in that state. If you live near a state border and can easily reach a store in the other state, you can play. Even people from overseas can buy tickets too!
So you do NOT have to be a state resident to be able to play in that state, or indeed any state.
2. Who Pays The Prize?
The next thing to realise if you buy a lottery ticket in another state, is that you cannot claim the prize in your state. You have to claim from the state where you bought the ticket.
Yes, this even applies to multi-state games like Powerball and Mega Millions. This is because each state has it’s own lottery company that runs all the games that you can play there.
So for small prizes you can still claim from a store as normal – but it will have to be a store in the state where the ticket came from. Your local store will not be able to pay it. For larger prizes you will have to send in a claim form to the lottery company for that state where you bought the ticket.
3. What About The Tax Then?
Some people think they can beat the tax system by crossing state lines to buy their tickets.
“My state has higher tax than the neighboring state, so I’ll be cunning and get my ticket there. Then when I hit that massive Powerball jackpot I’ll save millions in tax…”
This kind of cunning lottery system to beat the tax man will not work anyway. And of course tax evasion will get you a jail sentence.
For a jackpot the lottery company will deduct the tax before you even get the prize anyway. So the federal and state taxes for the state where the ticket was bought will already have been paid before the money hits your bank account.
However, your state will want their state taxes too!
So you have to pay double tax?
Well no, typically not. Because you will have already paid a chunk of state tax to the ‘other state’, your state will take this into account. So you only have to pay the ‘difference’. That is, the extra that you thought you were saving by playing in the neighbor state!
Then there are the smaller wins of course – taxes are due on these too of course, but not deducted in advance. You should be entering these as “other income” on your IRS returns anyway, but what if they are wins from another state? And can you deduct the cost of what you spent on tickets from those winnings?
This rapidly becomes a very confusing area as we’re talking about 47 different jurisdictions each with their own unique tax laws. Bottom line – get a tax expert to do your returns for you!
So Is It Worth Buying A Lottery Ticket In Another State?
Well not if you think it’s a cunning system to beat the tax – because it isn’t :-).
If it’s convenient though because you’re travelling, on vacation, there for work, or you would miss out on getting your ticket otherwise, then sure, why not.
If however you want to avoid any greater tax complications, then you might want to just stick to buying in-state. Your lottery company would prefer it that way too.