# Lottery jackpot: cash or annuity?

Compares a lottery jackpot’s lump-sum cash option with its annuity after 2026 federal tax and your state’s tax, and finds the return at which the annuity equals the cash.

- Page: https://www.acalculator.org/finance/lottery-calculator
- JSON spec: https://www.acalculator.org/finance/lottery-calculator.json
- Version: d7b852330671

## Default answer

Example with the default inputs (Advertised jackpot $100,000,000.00, Cash option $45,000,000.00, State Pennsylvania, Filing status Single, Other income a year $0.00, Annuity payments 30, Yearly increase 5%): A $100,000,000.00 jackpot is worth $27,018,499.75 as cash after tax, or $61,429,992.50 in total as an annuity after tax.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| jackpot | Advertised jackpot | The advertised jackpot: the total of all the annuity payments before tax. |
| cash | Cash option | The one-time cash value the lottery announces with the jackpot. |
| state | State | The state where you live and bought the ticket. |
| status | Filing status | Your federal filing status. |
| income | Other income a year | Your other taxable income each year before deductions. |
| payments | Annuity payments | The number of yearly annuity payments: 30 for Powerball and Mega Millions (one now, then 29). |
| growth | Yearly increase | How much larger each annuity payment is than the last: 5% for Powerball and Mega Millions. |
| rate | Your state tax rate | A state and local tax rate to use instead of the state’s top rate. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| cashNet | Cash option after tax | The cash option minus federal and state tax, all in one year. |
| annuityNet | Annuity after tax | All annuity payments minus the federal and state tax on each, each taxed in its own year. |
| difference | Annuity minus cash, after tax | How much more the annuity pays in total after tax, not counting when it is paid. |
| firstNet | First annuity payment after tax | The first payment, paid now, minus its tax. |
| lastNet | Last annuity payment after tax | The last payment minus its tax. |
| cashFederal | Federal tax on the cash | Federal tax with the cash option minus federal tax without it. |
| cashState | State tax on the cash | The cash option times the state rate. |
| impliedReturn | Break-even return | The yearly return at which the after-tax annuity payments are worth the after-tax cash today: if you can earn more, the cash comes out ahead. |

## Method

Cash after tax = cash − (2026 federal tax with it − without it) − cash × state rate; annuity payment k = J × g ÷ ((1 + g)ⁿ − 1) × (1 + g)^(k − 1), each taxed the same way in its own year; break-even return r: Σ net payment_k ÷ (1 + r)^(k − 1) = cash after tax.

## Assumptions

- Federal tax for tax year 2026 (standard deduction and brackets) in every year; later brackets will change with inflation and the law.
- Your other income is the same every year. The first annuity payment is paid now, the rest once a year.
- State tax uses the state’s top income tax rate (0 in states that do not tax lottery prizes; California does not tax California Lottery prizes) unless you enter a rate. Local taxes are not included.
- The cash option is what the lottery announces; it changes with interest rates.
- Estimates only, not tax or financial advice. If gambling is causing problems for you or someone you know, call or text 1-800-MY-RESET.

## Worked examples

1. jackpot = $300,000.00, cash = $150,000.00, state = TX, status = single, income = $0.00, payments = 3, growth = 0% gives cashFederal = $24,734.00, cashNet = $125,266.00, annuityNet = $260,472.00, firstNet = $86,824.00. Source: With the 2026 single brackets (Rev. Proc. 2025-32) and the Form 1040 Tax Table method.
2. jackpot = $100,000,000.00, cash = $45,000,000.00, state = PA, status = mfj, income = $0.00, payments = 30, growth = 5% gives cashFederal = $16,560,250.50, cashState = $1,381,500.00, cashNet = $27,058,249.50, annuityNet = $62,622,485.00.
3. jackpot = $1,000,000.00, cash = $500,000.00, state = CA, status = single, income = $0.00, payments = 1, growth = 0% gives cashState = $0.00, annuityNet = $679,999.75, cashNet = $361,865.75.

## FAQ

### Should I take the lump sum or the annuity?

It depends on what you would do with the money. The cash option is smaller and taxed in one year; the annuity pays more in total, spread over 29 years. The break-even return tells you the yearly return you would need on the after-tax cash to match the annuity: if you expect to earn more, the cash comes out ahead.

### How is the annuity paid?

Powerball and Mega Millions pay one payment now and 29 yearly payments, each 5% larger than the last, adding up to the advertised jackpot. For a $100 million jackpot the first payment is about $1.51 million and the last about $6.20 million.

### How much federal tax is due on a jackpot?

Most of a large prize is taxed at the top 37% rate. The lottery withholds only 24% of prizes over $5,000, so a big winner owes more when filing. Each annuity payment is taxed in the year it is paid.

### Which states do not tax lottery winnings?

Florida, Tennessee, Texas, Washington and Wyoming have no income tax; New Hampshire and South Dakota do not tax lottery prizes; California does not tax California Lottery prizes. Elsewhere this page uses the state’s top income tax rate.

### Is buying lottery tickets a good investment?

No. A lottery returns less than it takes in, and the chance of winning a jackpot is tiny. If gambling is causing problems for you or someone you know, call or text 1-800-MY-RESET.

## Sources

- Powerball, FAQs (one immediate payment followed by 29 annual payments that increase by 5% each year): https://www.powerball.com/faqs
- Mega Millions, How to play (annuity: one immediate payment and 29 annual payments, each 5% bigger): https://www.megamillions.com/How-to-Play.aspx
- Internal Revenue Service, Rev. Proc. 2025-32 (2026 brackets and standard deduction): https://www.irs.gov/irb/2025-45_IRB
- Internal Revenue Service, Instructions for Forms W-2G and 5754 (24% withholding over $5,000): https://www.irs.gov/instructions/iw2g
- California Franchise Tax Board, Gambling (California Lottery winnings are not taxed): https://www.ftb.ca.gov/file/personal/income-types/gambling.html
- National Council on Problem Gambling, help and treatment (1-800-MY-RESET): https://www.ncpgambling.org/help-treatment/