The Mega Millions lottery drawing stands at $1.1 billion as of Thursday, an amount of money most of us have trouble even imagining. >> Read more trending news Images of grand homes, yachts and airplanes are surely tempting, but with the taxes a lottery winner has to pay, the amount you net in the end may not be what you were expecting. Mega Millions and other lotteries
generally allow a winner to decide how they want to take possession of the jackpot – either by choosing an annuity where the jackpot is paid out over a 30-year period or by taking it in one lump sum. According to lottery officials, most winners opt for the lump sum, or “cash option,” as Mega Millions calls the payout. In the case of the next Mega Millions jackpot of $1.28 billion, that amount would be $747.2 million. It’s a staggering pile of money, but it’s not exactly what you would
pocket following your win. The federal government and all but a few state governments will immediately have their hands out for a bit of your prize. The top federal tax rate is 37% for income over $500,000. The first thing that happens when you turn in that winning ticket is that the federal government takes 24% of the winnings off the top. But the payments don’t end there. You will owe the rest of the tax — the difference between 24% and 37% — at tax time next year. So,
let’s say you decide to take the cash option when you win the Mega Millions jackpot. If the jackpot remains at $1.28 billion for the next drawing, the cash option is $747.2 million. The federal government will immediately take $179,328,000 from that cash option (24%), leaving you $567,872,000. Remember, the rest of your federal tax bill comes next year and will cost you another $97,098,955. So, when you take the cash option, you will end up with $470,773,045 after federal taxes. Now it is the state’s turn. State tax rates on lottery winnings vary. If you live in North Dakota, your state tax rate for lottery winnings is 2.9%. That means if you take the cash option and the federal and state government both get their shares, you are left with $449,104,245. If you live in New York, get out your wallet, because that state taxes lottery winnings at 8.82%. The lump sum most New York residents would get after federal and state taxes would be $389,328,245.
Additional taxes are charged if you live in New York City or Yonkers. If you live in California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming there’s some good news for you — those states do not tax lottery winnings. This means if you live in those states and win, you will get $470,773,045. One note: Your winnings could also be subject to local taxes in some states. Click here for USA Mega, a website that provides information on lotteries in the United States and around the world, and breaks down by state what you would take home if you win the Mega Millions drawing — both the lump sum option and the annuity option. Cox Media Group
 Before lottery winners can collect jackpots, they must usually make one important decision: Should they collect their winnings all at once or over a long period of time? The first option is called a lump-sum award. That’s when the winner receives all of the lottery winnings after taxes at one time. The second option is an annuity. Although annuities established by the lottery commissions have been informally dubbed “lottery annuities,” in reality, annuity contracts created for the purpose of distributing prize money typically fall under the safest category of annuities: fixed immediate. Each state and lottery company varies. Powerball, for example, offers winners the choice of a lump-sum payout or an annuity of 30 payments over 29 years. Mega Millions offers lump-sum payouts or annuities. The annuity offers an initial payment followed by 29 annual payments. Each payment is 5 percent larger than the previous one. Did you know? Lottery winning payments made using annuities are sometimes referred to as “lottery annuities,” but they are actually structured as period-certain fixed immediate annuities backed by the U.S. government. Lump Sum vs. Annuity for Lottery WinnersWhile both options guarantee a lottery payout, the lump-sum and annuity options offer different advantages. Choosing a lump-sum payout can help winners avoid long-term tax implications and also provides the opportunity to immediately invest in high-yield financial options like real estate and stocks. Fact Electing a long-term annuity payout can have major tax benefits. Federal taxes reduce lottery winnings immediately. But winners who take annuity payouts can come closer to earning advertised jackpots than lump-sum takers. Consider the case of the August 2022 Powerball jackpot that had reached $206.9 million at the time that a single winning ticket was sold in Pennsylvania. Most big-prize winners opt to take the lump sum payment when they win. That would have been $122.3 million for this jackpot. But the winner also could have opted to annuitize their payout, receiving 30 payments over 29 years. That path would have given them the full $206.9 million, paid out over three decades. Those payments include interest that will accumulate from investments over the life of the annuity. Annuities also protect winners who might otherwise spend everything after a lump-sum payment. Some winners may squander their funds all at once or not invest it properly, leading them to bankruptcy or other financial troubles. An annuity isn’t for everyone. Annuities are inflexible, prohibiting winners from changing the payout terms in the case of an unexpected financial or family emergency. The annual payments may prevent a winner from making large investments. Such investments generate more cash compared to the amount of interest earned on the annuities. Winners Face Tax IssuesTaxes also influence many lottery winners’ decisions on whether to choose a lump-sum payout or an annuity. The advantage of a lump sum is certainty — the lottery winnings will be subjected to current federal and state taxes as they exist at the time the money is won. Once taxed, the money can be spent or invested as the winner sees fit. The advantage of the annuity is the exact opposite — uncertainty. As each annuity payment is received, it will be taxed based on the then-current federal and state rates. Those who choose the annuity option for tax reasons are often betting that tax rates in the future will be lower than the current rates. However, should they regret their decision in choosing an annuity payout, lottery winners do have the option of selling their annuity payments for a discounted lump sum. Reasons for Selling Your Structured Settlement Can I Sell My Lottery Annuity?If you are interested in selling some or all of your annuity payments, you should contact your lottery company to clarify if the annuity can be sold. Expand There are currently 28 states that allow after-market sales of lottery annuities for a lump-sum payment. Winners also can decide to sell all or part of their future payments. The terms of the sale, including the total amount, are up for negotiation. The lottery winner must have court approval for the transaction to take place. A judge decides whether such a sale is in the person’s best interest. See what your future payments could be worth in cash Turn your future payments into cash you can use right now. Get started with a free estimate and see what your payments are worth today! How Much Is My Lottery Annuity Worth?If you want an estimate of the sales value of your lottery annuity, you can enter the information from your contract into this annuity calculator to get a custom quote that we stand behind. How to Find the Present Value of an Annuity What Happens to My Lottery Annuity When I Die?In spite of rumors that the government gets to keep the money, lottery annuities are generally passed to the winner’s heirs. In fact, some lottery companies allow for a transfer of the funds only when the annuity owner dies. In this instance, any remaining assets will be disbursed to the estate or a living beneficiary until their death or the end of the contract. Some lotteries will cash out an annuity prize for an estate, to make it easier for the estate to distribute the inheritance and to pay federal estate taxes when they apply. In order for the lottery to do this, it has to be allowed in the state where the ticket was purchased. The Process of Selling Annuity PaymentsLottery winners who decide to sell their periodic payments must first learn if they are allowed to do so. That is often determined by the state in which the lottery was won and not by the state in which the lottery winner lives. Sometimes there are ways of finding a loophole, a task best suited for a personal attorney. Who Buys Lottery Payments?Typically, two types of companies purchase long-term lottery payouts: factoring companies and insurance companies. These are the same companies that purchase settlements from sellers who collect personal injury settlements, mortgage notes and other kinds of long-term payouts. Factoring companies offer lottery winners immediate cash for their annuity contracts. They are buying the lottery winner’s future payments. The cash payment is less than the total of the scheduled annuity payments. The company should offer you a quote in writing at no charge. The annuity purchasing companies are part of a very competitive, heavily regulated market. Ask the company where they are certified and licensed and how long the quote is good. Ask about any fees and how long the company has been in business. When selecting a buying company, it’s usually best to look for a company with experience and that has people who take the time to explain the written offer. Do not cave to pressure to sign something before you fully understand and agree. The company you choose will draft a contract detailing the proposed agreement. The proposal has to be approved by a judge, who will determine if it is in the best interests of the lottery winner. The annuity purchasing company will take the contract to the judge. We recommend our partners, who have been vetted by experts in the field. They have helped thousands of people who need to get cash quickly. Tax Obligations of Selling Lottery PaymentsSomeone who cashes in some or all future lottery payments will owe federal income taxes. This differs from the sales of structured settlements from personal injury lawsuits. In those cases, buyouts are tax-free. Please seek the advice of a qualified professional before making financial decisions. Last Modified: October 31, 2022
5 Cited Research ArticlesAnnuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.
How much do you get if you win 100 million?Mega Million Annuity Payments
Each payment grows in size by 5% from the preceding year, which helps protect against inflation. If someone wins the jackpot of $100 million, they will receive about $1.5 million immediately, and then future annual payments would increase up to about $6.2 million.
How much would you actually get if you won the lottery?If you buy a winning Powerball ticket in California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming, there's some good news for you — those states do not tax lottery winnings. This means if you live in those states and win, you will get $585,383,000.
How does the 30 year lottery payout work?If you choose to take the annuity, you will, after 30 years, receive the full advertised amount. Your first annuity payment, or the single cash option payment, should arrive within six to eight weeks. There are generally no California state taxes for Lottery prizes, but we are required to withhold federal taxes.
How do big lottery winners get paid?Often referred to as a “lottery annuity,” the annuity option provides annual payments over time. A lump-sum payout distributes the full amount of after-tax winnings at once. Powerball and Mega Millions offer winners a single lump sum or 30 annuity payments over 29 years.
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