Understanding the Taxes on Mega Millions Jackpots

Arnav Gill
2 days ago
3 min read

Winning one of the Mega Millions jackpots can be a dream come true. The idea of becoming a millionaire overnight is exciting, but there’s something every winner should understand clearly — taxes. Before you can enjoy your prize to the fullest, it’s essential to know how much of your jackpot actually ends up in your pocket. This article breaks down the tax rules in a simple way so you can be prepared if you ever win big.

What Happens When You Win the Mega Millions Jackpot?

When you win the Mega Millions jackpot, you’re faced with two options:

Lump Sum Payment: You take the entire winnings at once in a reduced amount.
Annuity Payment: You receive the full advertised jackpot over 30 years in annual payments.

Most winners choose the lump sum, even though it’s a lower amount. The reason is simple — immediate access to a large portion of the prize, instead of waiting for three decades.

How Federal Taxes Affect Your Winnings

Whether you choose the lump sum or annuity, federal taxes will take a bite out of your winnings.

The IRS (Internal Revenue Service) automatically withholds 24% from your winnings.
However, depending on your total income for the year, you could owe up to 37% in federal taxes when you file your return.

Example:

If you win a $100 million Mega Millions jackpot and take the lump sum (let’s say around $60 million), then:

24% withholding = $14.4 million right away.
You may owe more at tax time, depending on your total income, possibly an extra 13% (another $7.8 million).

So, instead of $60 million, you might end up with around $37.8 million after federal taxes.

Don’t Forget State Taxes

State taxes vary widely across the U.S. Some states don’t tax lottery winnings at all, while others have significant tax rates.

No State Tax: States like Florida, Texas, and California don’t tax lottery prizes.
High State Tax: New York, for example, can charge up to 10.9%.

Example:

Let’s say you're a New York resident who wins that same $100 million jackpot:

Lump sum: $60 million
Federal tax: Around $22.2 million
State tax (10.9%): About $6.54 million
Final amount: Approximately $31.26 million

That’s a big drop from the advertised jackpot!

Annuity vs. Lump Sum: Which Is Better for Taxes?

If you choose annuity payments, your winnings are split into 30 annual payments, increasing by 5% each year. Here’s how that affects taxes:

You pay taxes only on what you receive each year.
Your annual income might keep you in a lower tax bracket, reducing how much you owe overall.
However, many winners still prefer the lump sum to have immediate control over their money.

Tips to Manage Your Jackpot Wisely

Hire a Tax Professional: Before you claim your prize, talk to a tax advisor or financial planner.
Understand Withholding: The lottery will withhold some taxes, but you may still owe more later.
Plan for the Future: Large jackpots come with big responsibilities. Invest smartly and manage your money to make it last.
Consider a Trust: Some winners set up trusts to manage their winnings and protect their privacy.

Final Thoughts

Winning one of the Mega Millions jackpots is an exciting and life-changing event. However, taxes play a huge role in how much money you actually receive. By understanding federal and state tax rules, and choosing between a lump sum or annuity wisely, you can make smarter decisions and keep more of your winnings.