Guide
Lump Sum vs Annuity: the After-Tax Math
The annuity always pays more dollars in total; the question is whether the cash, invested today, would grow to more. After tax, that comes down to one number — the return the cash must earn to match the annuity — and it differs by state.
Published and verified · Jackpot Tax Calc Editorial Team
What you are actually choosing between
For Powerball and Mega Millions the advertised jackpot is the sum of 30 payments: one immediately and 29 annual payments, each 5% larger than the last. The cash option is the money in the prize pool today, which the lotteries describe as what it would cost to fund that annuity at current interest rates. For a $300 million jackpot with a $135 million cash value, a Texan with no other income keeps $85,100,000 from the cash, or $190,499,993 spread over 30 years, starting at $2,894,721 and ending at $11,759,258.
Each annuity payment is ordinary income in the year it arrives. The first payment of a $300 million jackpot is about $4.5 million — already deep in the 37% federal bracket — so spreading the prize saves surprisingly little federal tax. The real tax differences come from state rules that apply per year.
Break-even return, by state
The table finds the annual after-tax return at which the cash option and the annuity are worth the same today, for the $300 million / $135 million example and a single filer with no other income, using 2026 law for every year. If you believe you can beat that return after tax, the cash wins; if not, the annuity does.
| State | Cash, after tax | Annuity total, after tax | Break-even return |
|---|---|---|---|
| Texas | $85,100,000 | $190,499,993 | 5.09% |
| Florida | $85,100,000 | $190,499,993 | 5.09% |
| Massachusetts | $72,994,310 | $164,829,293 | 5.17% |
| New York | $65,152,525 | $148,068,264 | 5.21% |
| New Jersey | $70,620,426 | $159,237,780 | 5.15% |
| Oregon | $71,736,756 | $160,852,688 | 5.10% |
| California | $85,100,000 | $190,499,993 | 5.09% |
Massachusetts stands out because its 4% surtax applies only to income above the threshold each year: a lump sum puts almost all of the prize above it once, while the annuity’s first payments put only the excess above it each year — and the threshold resets annually. New York City residents see a smaller version of the same effect, because annual payments between $5 million and $25 million are taxed at New York’s 10.3% recaptured rate instead of the 10.9% that applies when a year’s income passes $25 million.
Reasons beyond the math
- Future law. The figures assume 2026 brackets forever. Some changes are already enacted: Washington’s 9.9% tax on income over $1 million starts in 2028, Rhode Island’s surtax on income over $1 million starts in 2027, Montana and Nebraska cut rates in 2027. Federal brackets are indexed every year.
- Moving. A lump-sum winner is taxed where he lives in the year of the win; an annuitant who later moves to a no-income-tax state stops paying state tax on later payments, though a state that taxed the prize as income earned there may still claim it.
- Death. Mega Millions says unpaid installments continue to the beneficiary or estate; estate tax is a separate question.
- Spending risk. The annuity limits what can be spent in any one year, which some winners want.
Run your own numbers in the lottery tax calculator; its schedule shows every payment and the tax on it.
Sources: Iowa Lottery and megamillions.com (annuity structure), IRS Rev. Proc. 2025-32, the state sources on each linked page.