Suppose I purchase a lottery ticket today (Dec 14, 2015) and win $25K. If I wait a few weeks and redeem the ticket after Jan 1, are the taxes due based on income in this year (2015) or next year (2016)? Perhaps the answer is simply when the money is received, regardless of ticket or redemption date? Could the answer vary for Fed vs State?
It depends on when you can get the money, not when you know that you won or when you choose to take the ticket in. If you can present your ticket this year and get paid this year, the taxes are due this year, whether or not you actually choose to claim the prize this year. If you cannot receive payment until next year, then taxes will be due next year. This is "constructive receipt," which applies to most individual tax situations.
This assumes that you chose to receive a lump sum. If you get installments, then your taxes would be due as the installments are available, but the constructive receipt still applies.
The tax year will be determined by the date on the check from Lottery and they will withhold estimated taxes for federal, and for most state, incomes taxes.
Just remember if the ticket is claimed in January, then you will have to wait until the following year to get any possible refund.
Winnings are taxed in the year you receive payment. Period. Constructive requires an unqualified right to receive immediate payment. One qualification is that lottery tickets must be verified. Large winners usually have to wait a day or two, which voids the "immediate payment" clause. Here's an extreme example: If you don't cash the ticket until July after you've already filed your income taxes, is the state going to issue a retroactive W2G? That's kinda hard when the IRS requires that tax reporting be received by January 31st. Which year do you get to deduct the state income taxes paid/withheld?