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Curious Iowa: Where do the profits from Iowa Lottery sales go?
A deep dive into Iowa’s lottery system and where its profits go
Jul. 17, 2023 5:00 am, Updated: Jul. 17, 2023 7:30 am
Many Iowans have tried their luck at striking it rich in the lottery’s Powerball or Mega Millions games. Others have gone for a big win with a $5 scratch-off ticket.
Playing the lottery has become commonplace for many Iowans hoping to get rich quick, like the Tama County woman who won a $2 million Powerball jackpot last week.
But, as one curious Iowan recently wondered, what happens to all of the money that’s spent on those tickets?
Curious Iowa is a series from The Gazette that seeks to answer your questions about the state, its culture and the people who live here. One curious Iowan recently asked The Gazette: “Where do lottery ticket profits go?”
Iowa’s lottery was created in 1985, after Iowa Gov. Terry Brandstand signed a bill legalizing a lottery in the state. Since its inception, Iowa’s lottery has used its profits to help Iowa causes, Iowa Lottery spokesperson Mary Neubauer said.
“I hope when people play the lottery, they remember that — certainly you're playing for a chance to win prizes — but, if you don't win, you know that the money that you use to buy a lottery ticket goes for great causes here in Iowa,” Neubauer said. “I hope that's something that people remember and can take pride in as they're playing the lottery.”
Iowa’s lottery authority saw more than $430 million in sales in the fiscal year ending June 30, 2022, with more than $97 million of that revenue going to state programs like the Iowa Veterans Trust Fund, Public Safety Survivor Benefits Fund, and the state’s general fund.
Neubauer expects that the Iowa Lottery had another record setting year in sales for the most recent fiscal year, which ended June 30. Those numbers will be released when the annual report is published later this month by the lottery.
How is lottery revenue divided?
Profits from lottery sales in Iowa are split into different funds: 63 percent of the revenue goes to player prizes, 23 percent to state programs, 7 percent to businesses that sell lottery products, and 7 percent to administration costs for the Iowa Lottery Authority.
The majority of the funds paid to the state go to the general fund, which pays for the majority of the state’s expenses — including education, transportation, natural resources and more. The fund is appropriated by the Iowa Legislature.
The lottery contributed $95.2 million to the state’s general fund in the budget year ending June 30, 2022 and has contributed nearly $2 billion to the general fund since 1992.
The lottery also contributes to other funds, with flat rates assigned by Iowa law:
- $2.5 million to the Iowa Veterans Trust Fund, which provides Iowa veterans and their families with job training, college tuition assistance, individual and family counseling and some dental, vision and hearing assistance.
- $100,000 to the Public Safety Survivor Benefits Fund, that pays for the insurance needs for the families of Iowa law enforcement officers and firefighters who die in the line of duty.
- $100,000 to the Department of Corrections Survivor Benefits Fund, which provides similar assistance to the Public Safety Survivor Benefits Fund for families of Iowa Department of Corrections personnel who die in the line of duty.
After the most recent contribution to the fund in October 2022, the Iowa Lottery Authority has contributed almost $37.4 million to the Iowa Veterans Trust Fund since its inception in 2008.
Lottery ticket sales are big business in Linn County, Cedar Rapids
In the budget year that ended June 30, 2022, Linn County totaled $34.2 million in Iowa Lottery ticket sales, second only to Polk County with $68.7 million in sales.
However, when it comes to stores with the most lottery ticket sales, the Hy-Vee at 1843 Johnson Ave. NW in Cedar Rapids was the top retailer of the budget year ending June 30, 2022, with $1.2 million in sales. Two other Cedar Rapids Hy-Vee stores were among the top 10 retailers in that budget year: Hy-Vee at 20 Wilson Ave. SW, and Hy-Vee Drugstore at 1520 Sixth St. SW.
Instant-scratch tickets are the lottery’s most popular game. In May 2023 alone, the lottery racked up $38.7 million in ticket sales. Of that, $27.8 million was from instant-scratch tickets.
Veterans trust fund faces increased demand
The Veterans Trust Fund provides support to Iowa veterans and their families. However, the fund has faced financial challenges in recent years as the demand for assistance has increased because of financial pressures like inflation, the COVID-19 pandemic, and the 2020 derecho.
Last November, the state stopped accepting requests for assistance after the fund’s spendable balance was depleted.
A law passed in 2022 states that when the fund’s balance drops below $50 million, spending from the trust fund is limited to the interest earned off the principal, plus the first $500,000 of the $2.5 million that’s deposited into the fund by the Iowa Lottery.
Under that 2022 law, the Iowa Department of Veterans Affairs would be able to spend the full $2.5 million deposited by the lottery at the beginning of the first fiscal year following the fund reaching a balance of $50 million. Currently, the fund’s balance sits at just under $39 million, according to the department’s 2023 report.
State lawmakers have worked to address the increasing financial pressures that the fund faces, however their efforts fell short in the 2023 legislative session after the bill failed to be taken up for a floor debate in the Iowa Senate.
According to the most recent annual report by the department, In 2022, the commission spent $1.5 million from the trust fund in assistance payouts to Iowa veterans.
How are lottery winning’s taxed in Iowa?
As with all income, lottery winnings are taxed in Iowa. According to the Iowa Lottery Authority web page, taxes for prizes over $600 are automatically withheld when the lottery prize is claimed. Prizes between $600 and $5,000 have a tax rate of 5 percent, and prizes more than $5,000 are taxed an additional 24 percent, totaling 29 percent.
When a person claims a lottery prize of more than $600, the lottery authority will provide the federal tax form W2-G that shows the amount of winnings and the amount deducted.
Players can claim lottery winnings of less than $600 at any lottery retailer, if funds are available. Winnings of more than $600 must be claimed at an Iowa lottery office or submitted through the mail. Lottery offices are located in Clive, Cedar Rapids, Mason City and Storm Lake. Any prizes over $250,000 must be claimed at the Iowa Lottery’s main office in Clive.
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Comments: 319-368-8877; liam.halawith@thegazette.com
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