Two ways to get paid
The headline jackpot for big US lotteries like Powerball and Mega Millions is the annuity value: 30 payments over 29 years that grow 5% each year. The cash option is a single, smaller payment that equals roughly what the lottery would need to invest today to fund that annuity. In recent years the cash option has often been around 45% to 50% of the advertised jackpot, depending on interest rates.
Both are taxed. In the US, 24% is withheld for federal tax up front, but a jackpot puts the winner in the top 37% bracket, and most states add their own income tax. A 40% total tax rate is a rough middle estimate.
Which is better?
If you can invest the lump sum at a return higher than the annuity's built-in rate, the lump sum wins on paper, and it gives you control and flexibility immediately. The annuity protects winners from spending too fast and spreads tax over many years. Many financial planners lean toward the lump sum for disciplined winners with good advisers, and toward the annuity for those worried about losing it.
Common questions
How much is a $500 million jackpot after taxes?
With a 46% cash option and 40% total tax, about $138 million as a lump sum.
How much tax do lottery winners pay?
In the US, 24% federal withholding, with the final federal rate up to 37%, plus state tax in most states.
Do most winners take the lump sum?
Most choose the cash option, according to lottery officials.
This calculator gives estimates for planning. Real returns, rates and prices change, so treat the result as a guide rather than a promise. Read how we build and check our calculators.