For your federal tax, the full $1,000 will be included in your taxable income. Your tax is calculated on your total income, including the $1,000 lottery winnings. The tax is not calculated separately on the lottery winnings. Any federal tax that is withheld from your winnings will be added to any other tax you had withheld during the year, such as from your pay. The total withholding will be applied to your total tax.
On your New Jersey tax return, New Jersey does not tax prizes of less than $10,000 from the New Jersey lottery. Your $1,000 lottery winnings will not be included in the income on your New Jersey tax return.
