Our Mega Millions Payout and Tax Calculator Explained
As you might already know, when a player wins the Mega Millions jackpot, they'll have to choose between a single lump sum payment or 30 annual payments to claim their prize.
Choosing the lump sum, also known as the cash option, reduces the jackpot size to approximately 61% of the original amount, but awards it all at once to the player. On the other hand, the annuity or annual payment option awards the winner with the full amount or 100% of the jackpot – starting with one initial payment, followed by annual payments over the next 29 years.
Since the cash option and annuity option award different payouts, it only follows that your tax liabilities (state + federal tax) will also be different for both.
What our Mega Millions tax calculator provides is a quick overview of the gross and net (after taxes) winnings you'd receive for both options – allowing you to make a more informed decision when comparing the two.
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Finally, as an added feature, our tool also breaks down the annuity option into a handy payout schedule so you know how much annual payment you will receive per year.
Note: Payouts are approximations. For example, large charitable donations can be written off, meaning reduced tax liabilities.
How Much Tax Will You Pay on Mega Millions Winnings?
Your winnings from the Mega Millions lottery are treated as a taxable income, and therefore subject to both federal and state tax where applicable.
Federal Tax on Mega Millions Winnings
Whether you’re a single or joint filer as well as your tax bracket determines how much you’ll be paying in federal taxes – but your winnings can easily push you to a higher bracket. You can access federal tax rates and calculators via the IRS website.
Let's imagine a situation where you are an individual taxpayer earning an annual income of $45,000. Now, let's suppose you strike it lucky and win a substantial $100,000 in the Mega Million lottery. This newfound windfall boosts your taxable income to $145,000, leading to an increase in your marginal tax rate from 22% to 24%. (For the sake of simplicity, we'll assume there are no deductions in this example.)
However, it's crucial to understand that the 24% tax rate won't apply to your entire $145,000 income. If, for instance, the income bracket subject to the 24% rate begins at the threshold of $95,376, you will only face the 24% tax rate on the portion of your income that surpasses this figure. In this specific case, that excess amount equates to $49,624.
To put it simply, you would owe $16,290 in taxes on the initial $95,376 of your income and 24% of the remaining $49,624. Consequently, from your $100,000 lottery winnings, your total federal tax obligation would amount to $28,199.76.
State Tax on Mega Million Winnings
If applicable, your state might want a bit of your winnings as well – how much will depend on where you live. Tax rates across the country vary from 0% to 8%, with the State of New York taking the biggest chunk. Whereas 9 out of 51 states don’t impose an income tax at all:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
But what happens when you live in one state and buy tickets in another? In such cases, you have to pay taxes in line with the regulations of the state you bought the ticket in.
You can use our calculator to understand your tax liabilities easily!
What About Non-US Residents?
In some cases, non-US residents who win a US lottery like Mega Millions may be subject to federal and state tax on their prize.
In cases where taxes are applicable, rates jump up to between 30% to 38% for federal tax, and special rates are applied by states which vary.
Foreign nationals from certain countries are exempt from tax withholding on gambling winnings because of the provisions of an existing tax treaty. These countries include: Austria, Belgium, Czech Republic, France, Germany, Iceland, Ireland, Japan, Latvia, Luxembourg, Russia, Slovenia, Spain, Turkey, Ukraine, and the United Kingdom.
Upon collecting their prizes, individuals from these countries will have to fill out a W-8BEN form. If tax was already withheld, they can file Form 1040-NR form to claim any amount.
How to Collect Your Mega Millions Winnings
If you do strike lucky and win the Mega Millions lottery, there remains one important decision to make: how do you want to collect your prize?
You’ve got two options:
- Get a lump sum payout,
- Collect your prize in annuity payments over 30 years.
Both withdrawal methods have their advantages and disadvantages and are best suited for different circ*mstances.
Cash Lump Sum
Taking out your entire prize as one lump sum payment is good for many reasons: you get a hold of your money quickly, you can invest early on, pay your debts, and so on. Yet, there’s one big reason in the con column that could make you reconsider: you’ll lose a substantial amount in federal tax (as well as state, if applicable).
Any winnings above $5,000 attract a 24% mandatory upfront federal withholding, which goes straight to the IRS. By this calculation, if the price was $500 million, for example, it would be reduced to $120 million, leaving you with $320 million to take home.
It doesn’t stop there either. As we previously mentioned, the chances are that lottery winnings will push you to a higher tax bracket due to increased net worth.
Despite the substantial tax withholding, many experts advise taking out a cash lump sum rather than opting for annuity payments.
Annuity Payments
Annuity payments mean taking out annual payments of your prize, which is usually paid out in full in 30 years.
This is how it goes: The annuity value is paid through government bonds, which are purchased with the cash value of the prize. These bonds earn enough revenue to make up for the difference between the cash value and the advertised jackpot value.
On the whole, considering the substantially lower tax liabilities, annuity payments result in a higher payout over an extended period of time. It also provides a steady stream of income over three decades and prevents overspending.
You can use our payout calculator to see what sort of payment schedule you’ll be looking at.
Lump Sum vs. Annuity – A comparison
| Lump Sum | Annuity Payments | |
| Payout Structure | The recipient gets the full prize amount all at once. | Payments are distributed regularly at predetermined intervals until the entire sum has been disbursed. |
| Tax Implications | If you choose to collect your winnings as a cash lump sum, you will owe federal taxes on the entire amount you receive, and this might potentially push you into a higher tax bracket, leading to an increase in your tax obligations. | Taxes are deferred until the entirety of your winnings are paid out. |
| Investment Opportunities | You have the opportunity to invest significant amounts of money earlier and take advantage of the resulting profits. | You can invest your money gradually as you receive it, which can help counteract the impact of inflation on your future payments. |
| Best Suited for | Savvy investors who can proficiently handle the effective investment of substantial funds. | Individuals who are looking for consistent income over an extended period or those who tend to spend excessively. |
Glossary of Terms
Estimated Jackpot: The total payment a winner would receive should they choose the annuity option for any given drawing. This number is based on the funds in the prize pool (including all prior rollovers), expected ticket sales for the next drawing, and current market interest rates.
Annuity Payout or Annual Payment Option: Payment scheme wherein prizes are awarded starting with 1 immediate payment followed by 29 annual payments. These payments are graduated – meaning they increase by 5% each year to account for inflation. The total value of all payments is equivalent to 100% of the advertised jackpot.
Lump-Sum or Cash Option:Payment scheme wherein a one-time payment is immediately awarded to the winner. The total value is approximately 61% of the advertised jackpot. This is also known as the cash optionand is the more popular choice among jackpot winners.
Federal Tax: Income tax withheld by the US government, including income from lottery prize money. This can range from 24% to 37% of your winnings.
State Tax: Additional tax withheld, dependent on the state. This varies across states and can range from 0% to more than 8%.
Tax Liability: The taxes you will have to pay in order to receive your prize. This is computed as federal tax + state tax. Please note that in some cases, you might have to pay additional taxes.
Gross Payout: The total prize awarded to a winner before federal and state taxes are applied.
Net Payout: The remaining prize awarded to a winner after federal and state taxes are applied.
Frequently Asked Questions
1. What is the federal tax rate on Mega Millions?
The federal government can withhold anywhere from 24 to 37 percent, depending on the total amount you win.
2. How do you calculate taxes on Mega Millions?
You can compute your net lottery winnings by subtracting federal (25-37%), state (0-8.82%), and applicable local taxes from the advertised prize amount.
3. Do you pay taxes on $1,000 lottery winnings?
Yes and no. You will likely receive the entire $1,000, but you’ll still have to report that amount as taxable income when you file your taxes.
4. How much tax do you pay on a $10,000 lottery ticket?
The IRS automatically withholds 24% of that amount. You must also pay any remaining federal, state (rate varies per state), and applicable local taxes.
5. Are lottery winnings taxed twice?
Lottery winnings are taxed at both the federal and state levels. Typically, large prizes are taxed even before winners receive the money. Winners will also have to pay income tax on the total winnings they receive.
6. What are the taxes on 1 million dollars?
The IRS will withhold 24-37% of that right off the bat. You will also have to pay state plus any applicable local taxes. A $1 million prize will also put you in the highest tax bracket with a tax rate of 37%.
7. How much would I take home if I won a million dollars?
At least $240,000 will automatically be withheld by the federal government and the rest, up to $130,000, you will owe at tax time the next year. You will also pay a state-mandated tax that can sometimes amount to over $50,000.
8. How is the lottery lump sum calculated?
The lump sum payout for a lottery is equal to the total funds allocated to fund the jackpot. This is calculated as a percentage of the total revenue generated from tickets.
9. Do lottery winnings count as income?
Yes. All lottery winnings count toward your taxable income at the end of every year. Your tax bracket may also go up when you win a large amount.
10. How to calculate Mega Millions Payout?
You can get an estimate for Mega Millions cash value by deducting 37% of the amount advertised.
Other Lottery Calculators and Tools
Also, check out our Powerball Payout and Tax Calculator to figure out how much tax you will owe on your lottery winnings, and both cash and annuity payments.
If you haven't bought your tickets yet and are wondering what the odds of your winning are, you can use our Lottery Odds Calculator or geek out and dive into the math behind Powerball Odds or Mega Million Odds.
