How This Calculation Works
This calculator separates the two numbers that lottery winners most often confuse: what the payer withholds, and what you actually owe. It applies IRC §3402(q) for the withholding and the 2026 individual rate schedules from IRS Rev. Proc. 2025-32 for the liability. For the full statutory background, see our Lottery Winnings Tax Guide.
Step 1: Determine the Payout Confirmed
The advertised jackpot is the annuity total, paid over 30 years. The lump sum is the discounted cash value, entered here as a percentage of the headline figure (historically 48 to 52 percent for Powerball and Mega Millions). The calculator computes both so you can compare them net of tax.
Step 2: Mandatory 24 Percent Withholding Confirmed
Under IRC §3402(q), the payer must withhold 24 percent of the proceeds from a sweepstakes, wagering pool, or lottery when those proceeds exceed $5,000. Proceeds means the winnings minus the amount of the wager, and the wager is subtracted at the time of the first payment. The same 24 percent applies as backup withholding under IRC §3406 if the winner does not furnish a correct taxpayer identification number. For an annuity, each annual payment is withheld on as it is paid.
Step 3: Actual Federal Tax on the Winnings Confirmed
The winnings are ordinary income. The calculator computes your federal tax twice - once on your other income alone, and once on your other income plus the payout - each time reducing taxable income by the 2026 standard deduction for your filing status. The difference between the two results is the tax attributable to the winnings. This stacking method is what makes a jackpot so expensive: your other income already fills the low brackets, so the prize is taxed from wherever that income leaves off, straight up through 37 percent.
Step 4: The Balance Due at Filing Confirmed
Balance due equals the actual federal tax on the winnings minus the 24 percent already withheld. On a large prize this is a positive and often very large number, because the flat 24 percent deposit is far below the 37 percent top rate. This is the single most commonly missed item in lottery planning, and it is why an estimated tax payment is usually advisable.
Step 5: State Tax and Net Confirmed
State income tax is applied as the flat rate you enter, multiplied by the payout. Rates and rules vary too widely to hardcode - some states withhold at source, some exempt their own lottery, and nine have no income tax at all - so the rate is a user input rather than an assumption. Net take-home equals the payout minus the actual federal tax minus the state tax.
Step 6: Annuity Comparison Simplified
The annuity column divides the advertised jackpot into 30 equal annual payments, computes the tax on one payment stacked on your other income, and multiplies by 30. This holds your other income, filing status, and the tax law constant across all 30 years, which is a deliberate simplification: real multi-state annuities graduate the payments upward by roughly 5 percent a year, and Congress can change rates at any time. The comparison is directionally reliable - spreading income lowers the effective rate - but the exact 30-year figure is illustrative.