People at work keep saying the lottery already takes all the tax before you get paid. My understanding is withholding and the final amount you owe are not always the same thing. Can someone explain that difference without turning it into personal tax advice?
Right. Withholding is money sent to the tax authority when the prize is paid; it is not a promise that the final bill is settled. For a US taxpayer, federal lottery proceeds over the withholding threshold are generally withheld at 24%, but the winner must report the full taxable prize and calculate tax using the complete return. That calculation can produce more tax due or a refund.
State and sometimes local taxes are separate. A nonresident alien follows different reporting and withholding rules, commonly 30% unless a treaty changes it. The payer's form, residency, payment choice and other income all matter, so a large-prize winner should use a qualified tax professional rather than treating the amount withheld as the final rate.