Mega Millions Tax Calculator Explained
Winning the Mega Millions jackpot is a life-changing event, but American winners must understand that the actual cash received is significantly less than the advertised amount. Lottery prizes are treated as ordinary income by the IRS, which means they are subject to both high federal and, usually, state taxes.
The tax calculator below helps estimate your final, take-home amount based on the two crucial factors: the federal tax rate (which can hit 37%) and your state’s tax laws. After all taxes are paid, a winner typically keeps between 50% and 63% of the upfront lump-sum cash option.
The Federal Tax Hit: 24% Withholding is Just the Start
The federal government claims the first portion of any large lottery win. For Mega Millions prizes over $5,000, the lottery commission is required to immediately withhold 24% of the money for federal taxes. This amount is sent to the IRS upfront.
The True Federal Rate (Up to 37%)
For a massive jackpot winner, the 24% withholding is not the final tax bill. Since a large win pushes the winner into the highest income bracket, the full federal tax rate can reach 37% (the top marginal rate for 2025).
- Initial Withholding: 24% is automatically taken out before the money reaches you.
- The Difference: The winner must pay the remaining amount—up to an extra 13%—when they file their federal tax return for that year.
For example, a winner claiming the cash option of a jackpot will owe 37% federal tax on most of the money, regardless of the initial 24% withholding.
Mega Millions Tax & Net Payout Calculator
Example: 900000000 = $900 million
Lottery over $5,000 is always at least 24%
Based on typical 2025 lottery rates.
Annuity option
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Cash lump sum option
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This is an estimate based on common 2025 withholding percentages for lottery prizes. Actual withholding and final liability can differ by residency, non-resident rules, and local surcharges.
State Tax Impact: The Zero-Tax States
After federal taxes, the next major reduction is the state tax, which varies dramatically across the country. This tax is based on both where the ticket was purchased and where the winner lives.
States with 0% Lottery Tax
Nine U.S. states plus the District of Columbia currently impose no state income tax on lottery winnings, allowing winners to keep significantly more money.
Highest-Taxing States (Examples)
Most other states treat lottery winnings as regular income and tax them at their standard income tax rates. Some states also have local taxes that increase the overall tax burden.
Example: In New York City, the combined state and local taxes can reduce a jackpot winner’s payout by over 12.6%, making it one of the most expensive places to win a lottery prize.
Lump Sum vs. Annuity: When Do You Pay?
Mega Millions winners face a critical choice between two payment methods, which determines when they pay taxes:
- Lump Sum Cash Option: This is a one-time payment that is the present cash value of the full annuity amount (historically about 50–60% of the advertised jackpot). All federal and state taxes are due upfront on this entire cash amount in the year it is claimed. This is the most popular choice, but it results in the largest tax bill immediately.
- 30-Year Annuity: This option pays the full advertised jackpot amount in 30 graduated annual payments. Each payment increases by 5% each year. Taxes are paid annually on each payment received, potentially allowing the winner to benefit from future lower tax rates.
In both scenarios, the same high tax rates apply. The difference is that the lump sum triggers the entire bill now, while the annuity spreads the tax liability over three decades.
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