When you win a massive lottery jackpot like Powerball or Mega Millions, you face a life-changing decision: take the Lump Sum (Cash Option) now, or receive the Annuity payments over 29 years.
The advertised jackpot (e.g., “$1 Billion”) is misleading—it is the pre-tax sum of all annuity payments. Our calculator reveals the cold hard numbers: exactly how much cash hits your bank account after Federal and State taxes for both options.
How the Payouts Work
Understanding the difference is crucial for your financial planning.
Option A: Lump Sum (Cash Option)
This is the amount of money currently in the prize pool. It is typically about 52% of the advertised jackpot.
- Pros: You get all the money immediately. You can invest it yourself. If you can earn a return higher than ~4-5% annually, this is mathematically the better option.
- Cons: The number is much smaller than the advertised jackpot. You face the risk of spending it all quickly.
Option B: Annuity
The lottery commission invests the Cash Option for you in government bonds. They pay you an initial sum, followed by 29 annual payments that typically increase by 5% each year.
- Pros: You receive the full advertised jackpot amount (gross) over time. It provides guaranteed income for 30 years and protects you from blowing the fortune instantly.
- Cons: Inflation eats away at the value of future payments. You lose the flexibility to invest the capital elsewhere.
Frequently Asked Questions (FAQ)
Why is the Cash Option so much lower?
The Cash Option is the actual money the lottery has on hand from ticket sales. The “Advertised Jackpot” is an estimate of what that cash would grow to if invested in bonds over 30 years.
How much is lottery tax in the USA?
The IRS automatically withholds 24% of the winnings upfront. However, since you will fall into the top income bracket, you will likely owe the full 37% Federal Tax when you file your return. State taxes range from 0% (e.g., Florida, Texas) to over 10% (e.g., New York, California).