It doesn’t matter whether you got a lottery annuity settlement, or a lottery lump sum payout — you’re going to ultimately have to pay the tax man. There’s no way around it. Usually, the lottery withholds 25% off the top for federal taxes. Then, there’s another 6% to 9% that’s withheld for state taxes, depending on where you live and what your tax bracket is. Though it might sound like a lot is getting taken out of your lump sum or your annuity, your lottery payments are definitely going to shrink more than you might think. Here’s a look at what taxes do to some of the top lottery games in the nation.
The Mega Millions
The Mega Millions annuity is paid out as one immediate payment, and 29 annual payments afterwards. Each of these following payments grows 5% bigger than the one before it. A typical jackpot of $50 million would provide an initial payment of $750,000, with future payments ultimately growing to $3.1 million. In other words, if you get an annuity after winning the Mega Millions, you’re only going to get about $562,500 before state taxes.
The Powerball’s annuity payout schedule is similar to the Mega Millions. It also consists of 30 total annual payments that gradually increase in value over time. Pedro Quezada, who won the $338 million Powerball back in 2013, only got $4 million after taxes for his first payment. Now, that’s a lot of money, but it’s nothing in comparison to the total amount.
The $1,000,000 Cashword
The $1,000,000 Cashword lotto game is a scratchoff ticket that, as promised, can pay out a whopping $1 million. However, between the payout structure, the probability of winning it, the expected rate of return, and taxes, each scratch off has an expected payout of $0.60 per dollar. Of course, this shouldn’t stop you from playing the lottery. Not at all. It’s how dreams come true for many. Just be sure that if you do win, don’t expect to get each and every penny that they say you won. If you have any questions about lottery winnings, feel free to share in the comments.