How this calculator works
Lottery jackpots are usually advertised as the total of an annuity, not as a lump sum. A typical structure pays 30 annual instalments, each 5% larger than the one before, so the early payments are modest and the later ones are large. This calculator finds the first payment by solving an increasing annuity whose payments sum to the advertised jackpot, then shows each payment with the tax on it. Federal and state rates are applied flat, which is a simplification: a large payment can push you into a higher bracket, and state treatment varies widely. The present value line discounts each after-tax payment at the rate you choose, which shows what the stream is worth today. Compare that with a cash option if one is offered. The model ignores the timing of the first payment within the year, withholding differences, local taxes and any fees or assignments.
Formula
With growth factor g = 1 + annual increase, the first payment is P = J(g - 1)/(g^n - 1) for n payments totalling J. Payment in year k is P x g^(k-1). Present value = sum of payment_k x (1 - federal - state) / (1 + discount)^k. Total tax = jackpot x rate, because the rate is flat. With no increase, each payment is J / n.
Worked example
A $10,000,000 jackpot paid over 30 years with a 5% yearly increase has a first payment of $150,514.35 and a final payment of $619,537.48. At 30% federal and 5% state tax, the total tax is $3,500,000 and the after-tax total is $6,500,000. Discounted at 4%, the after-tax stream is worth $3,253,338.88 today.
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Frequently asked questions
Why is the first payment so small?
Because each payment is 5% larger than the last, the series grows geometrically. Fitting thirty growing payments into the advertised total pushes most of the value into the later years, so the first payment is only about 1.5% of the advertised jackpot.
Should I take the annuity or the cash option?
It depends on the cash value offered and on your own return. If the cash value is about half the advertised jackpot, taking the cash and investing it may beat the annuity if your after-tax return is high enough; the annuity offers certainty instead. Compare the present value line here with the cash option after tax.
Is the advertised jackpot taxable?
Yes, in the United States lottery winnings are ordinary income. Federal withholding is immediate, and the final bill can be higher at the top marginal rate. This calculator uses the flat rates you enter and does not model brackets.
What happens to the payments if I die?
The remaining payments go to your estate or a named beneficiary. They are still taxable to whoever receives them. Some winners assign future payments to a buyer for a lump sum, usually at a steep discount.