Lump sum vs annuity: how they work
- The annuity is the advertised jackpot, paid as 30 payments over 29 years: one straight away, then one each year, each 5% bigger than the last. The payments add up to exactly the advertised amount.
- The cash option is the money actually in the jackpot prize pool. The advertised jackpot is roughly what that cash would grow into if it bought the 30-year annuity, so the cash value moves with interest rates. Recently it has been about 43% to 47% of the advertised jackpot. Use the official cash value from the Powerball or Mega Millions website for the most accurate result.
Federal tax: why 24% isn't the whole bill
When you claim a big prize, the lottery withholds 24% for federal income tax. But a jackpot puts you in the top 37% bracket for 2026 (taxable income over $640,600 single, $768,700 married filing jointly), so the real federal bill is close to 37% of the prize. The difference, about 13% of the prize, is due when you file your tax return. Winners who spend the "after-withholding" amount can face a very large tax bill the following April.
With the annuity, each year's payment is taxed in the year you receive it, so most payments are still taxed largely at the top rate, but not quite all of them.
State taxes on lottery winnings
- No state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. California also doesn't tax its own lottery prizes.
- Highest: New York (up to 10.9%, plus 3.876% in New York City), New Jersey and DC (10.75%), Oregon (9.9%), Minnesota (9.85%) and Maine (9.15% with its 2026 surcharge).
- Often missed: Pennsylvania does tax PA Lottery cash prizes (3.07%), and Delaware taxes winnings but doesn't withhold, so the full state tax is due when you file.
- No Powerball or Mega Millions: Alabama, Alaska, Hawaii, Nevada and Utah don't sell either game.
Several states cut their rates for 2026, including Arkansas, Georgia, Kentucky, Montana, North Carolina, Ohio, Oklahoma, South Carolina, Utah and West Virginia. Many lottery websites and calculators still show the old rates.
If you buy a ticket in one state and live in another, the state where you bought it usually taxes the prize, and your home state may tax it too and give a credit for the tax already paid. This calculator assumes you live where you bought the ticket.
Which should you choose?
On paper the decision comes down to the break-even return the calculator shows: if you can reliably earn more than that after tax, the lump sum ends up worth more. In practice, other things matter too:
- For the lump sum: full control, the chance to invest or give it away now, and nothing left to chance if you die early. Most jackpot winners choose it.
- For the annuity: protection against overspending or bad investments (a common story for big winners), a payment that grows each year, and the remaining payments go to your estate if you die. The risk is that tax rates rise over the 29 years.
Anyone who wins a jackpot should speak to a tax adviser, a lawyer and a fee-only financial planner before claiming. Most states give you months to claim the prize, and some let you claim through a trust to stay anonymous.
The odds
The odds of winning the Powerball jackpot are 1 in 292,201,338, and Mega Millions 1 in 290,472,336. A Powerball ticket costs $2 and, since April 2025, a Mega Millions ticket costs $5. Play for fun, with money you can afford to lose.
Sources: IRS Rev. Proc. 2025-32 and W-2G instructions; state revenue departments and lotteries; Powerball prize chart; Mega Millions cash value vs annuity. Last checked 26 October 2026. Not affiliated with Powerball, Mega Millions or any state lottery.