Mega Millions Payout Calculator: Lump Sum vs. Annuity After Taxes
Enter the advertised Mega Millions jackpot, your state, and filing status to see exactly how much you would take home under both payout options. The calculator shows your after-tax lump sum, the full 30-year annuity schedule with 5% annual increases, the federal tax gap between the 24% withholding and the 37% top rate, and the net present value of the annuity so you can compare both paths on equal footing.
Lump sum vs. annuity: which pays more?
When you win a Mega Millions jackpot, you choose between two payout structures. The lump sum (cash option) pays roughly 55-65% of the advertised jackpot in a single payment. The annuity pays the full 100% of the advertised jackpot, spread over 30 annual payments. The first payment is made immediately; each subsequent payment is 5% larger than the prior year to account for inflation. On the surface the annuity pays out more total dollars, but the payments arrive over three decades. When you account for the time value of money, a dollar received today is worth more than a dollar received in 20 years, which often makes the two options closer in value than they first appear. If you can invest the lump sum at a return greater than 5% per year after taxes, the lump sum may ultimately deliver more wealth; if you cannot reliably outperform that threshold, the annuity provides a guaranteed stream of income.
How federal taxes work on lottery winnings
Lottery winnings are treated as ordinary income for federal tax purposes. Because virtually any Mega Millions jackpot pushes a winner into the highest federal bracket, the effective marginal rate on the entire prize is 37% (the 2026 top bracket). However, only 24% is withheld immediately when you receive payment. That creates a tax gap: the remaining 13% must be paid when you file your federal return for that year. For a $500 million jackpot with a $300 million cash value, the 13% gap alone is roughly $39 million, which winners must set aside. Some winners are surprised by this bill, so planning with a CPA before claiming is important.
State taxes and where you live matters
Nine states levy no state income tax on lottery winnings at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. California taxes lottery winnings at the 13.3% top rate, the highest in the country. New York adds 10.9%, and New York City residents owe an additional local tax of up to 3.876% on top of that, bringing the combined rate to nearly 15%. Some winners consider changing their state of residency before claiming, though this carries legal complexity and scrutiny. State rules on nonresident winners can also apply if you buy a ticket while traveling through a high-tax state.
Net present value and the fair comparison
To compare the lump sum and annuity on a truly equal basis, analysts use net present value (NPV). NPV discounts all future annuity payments back to today using an assumed investment return rate. If you can earn 5% per year on the invested lump sum, and the annuity also grows at 5% per year, the NPV of the annuity roughly equals the lump sum gross. If you earn more than 5%, the lump sum wins; if you earn less, the annuity wins. This calculator lets you set your own discount rate so you can see the break-even point for your own situation. The default rate of 5% is a reasonable estimate for a diversified, moderately conservative portfolio.
State lottery tax rates (2026)
| State | Rate | Notes |
|---|---|---|
| Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming | 0% | No state income tax |
| Arizona | 2.5% | |
| Indiana | 3.05% | |
| Pennsylvania | 3.07% | |
| North Dakota | 2.9% | |
| Colorado / Georgia | 4.4% / 5.49% | |
| New York | 10.9% | Highest rate |
| New Jersey / D.C. | 10.75% | |
| California | 13.3% | Highest individual rate |
Approximate state income tax rate applied to lottery winnings. Nine states levy no state income tax.
Frequently asked questions
What percentage does Mega Millions take for the lump sum?
Mega Millions does not take a percentage itself. The lump sum is simply the present value of the prize fund held in Treasury securities, typically 55-65% of the advertised jackpot. The exact figure is set at drawing time. The reductions you see come from federal taxes (37%) and state income taxes, not from Mega Millions itself.
Is the lump sum or annuity better for taxes?
Both options are taxed at the same 37% federal rate because both push winners into the top bracket. The annuity spreads payments over 30 years but each annual payment is still taxed at the top rate. There is no tax advantage to either option for a large jackpot. The difference comes down to investment returns and personal preference for a guaranteed income stream versus a single large sum.
How much of a $1 billion Mega Millions jackpot do you actually keep?
At a 60% cash value, the lump sum would be $600 million before taxes. After the 37% federal tax ($222 million) and a state tax of, say, 5% ($30 million), you would keep roughly $348 million. Winners in no-income-tax states would keep about $378 million. Winners in New York would keep closer to $322 million after state taxes.
What is the 24% federal withholding on lottery winnings?
Federal law requires the lottery to withhold 24% of winnings above $5,000 before paying you. This withholding is sent directly to the IRS on your behalf. However, since the top federal marginal rate is 37%, you will owe the remaining 13% when you file your tax return. This extra amount can be tens of millions of dollars for a large jackpot, and you should set it aside immediately rather than spending it.
Do you pay taxes on each annuity payment?
Yes. Each of the 30 annual annuity payments is treated as ordinary income in the year it is received and taxed at your marginal federal rate (37% for large payments) plus state income tax. There is no special rate for lottery annuity payments. You receive a W-2G form each year for each payment.
Can I change from annuity to lump sum after claiming?
No. Once you select a payout option and claim the prize, the choice is permanent. You cannot switch from the annuity to the lump sum later, though you may be able to sell future annuity payments to a factoring company (at a steep discount) through a structured settlement buyout.
Do non-US residents pay a different tax rate?
Yes. Non-resident aliens who win a US lottery are subject to a flat 30% withholding rate, which cannot be reduced through a tax treaty for gambling winnings. Some treaty countries do have reduced rates, but the US currently does not recognize treaty exemptions for lottery prizes for most countries.