If you win Mega Millions in a taxing state and choose the annuity option and later move to a non-tax state, will you still have to pay taxes to the state you won in?
Since US lottery winnings greater than $5k (I believe) have taxes automatically withheld from the payment, and the annuity payment always comes from the lottery organization in the state in which the ticket was bought, you have no way to escape owing (and paying) taxes to the state you bought the ticket in.
This is because:
- the state you live in charges you 0% tax.
- the state you used to live in no longer has a claim to your income (unless its the same as the state in the next point)
- the state paying you the annuity charges you X% in tax because they are the source of the payment and you aren't paying any tax in the state you live in.
None of this stops federal taxes of course!
This isn't your situation, but I think worth mentioning: The only way you wouldn't owe X% state tax in the third bullet is if your current state imposed a tax rate higher than X% AND that state had tax reciprocity agreements with your current state. In these cases, residence always takes priority over source. That said, I believe Maryland and Arizona explicitly disallow reciprocity for out-of-state residents of their lottery winnings. So you'd pay tax to both states in that case.