Is the lump sum really smaller than the advertised jackpot?
Yes. The advertised jackpot is the annuity value: 30 graduated payments over 29 years. The lump sum, or cash option, is the money actually in the jackpot prize pool, which is what it costs today to fund those payments.
The ratio between the two moves with interest rates and is recalculated for every drawing. In early October 2026 it was about 41%: the Powerball drawing of October 5 was advertised at $467 million with a $192.4 million cash value. Across the last dozen drawings of each game it averaged about 42% (see our jackpot cash value analysis). For a $500 million jackpot, that gives:
- Advertised jackpot: $500,000,000
- Cash value at about 42%: about $210,000,000
The annuity pays more in total and spreads the tax over 30 years, but you have to live to collect it and accept the lottery's built-in return. Many winners take the cash. The trade-offs are covered in lump sum vs annuity.
How much does the lottery withhold for federal taxes?
The lottery must withhold 24% when a prize, minus the cost of the ticket, is more than $5,000, according to the IRS instructions for Form W-2G. On a $210 million lump sum:
- Federal withholding at 24%: about $50,400,000
- Paid to you before any state withholding: about $159,600,000
That's withholding, not the final bill.
Why do jackpot winners owe more at tax time?
Lottery winnings are ordinary income. For 2026, the 37% top federal rate applies to taxable income over $640,600 for a single filer ($768,700 for a married couple filing jointly). Almost all of a $210 million prize is taxed at 37%, so the 24% withheld leaves roughly 13 percentage points to pay with your return:
- Additional federal tax due at filing: about $27,300,000
- Net after federal tax: about $132,300,000
Charitable giving can reduce the bill, and a donor-advised fund opened in the year of the win is a common tool. Two 2026 changes from the One Big Beautiful Bill Act limit the benefit: for taxpayers in the 37% bracket, itemized deductions are worth at most 35 cents per dollar, and charitable deductions only count above 0.5% of adjusted gross income. On a sum this large there's no realistic way out of the top bracket.
Which states tax lottery winnings, and how much?
This is where location makes the biggest difference.
No state tax on lottery winnings: California (which exempts its own lottery's prizes, including Powerball and Mega Millions tickets bought there, under Government Code § 8880.68; see does California tax lottery winnings), Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Alaska and Nevada also have no income tax but don't sell lottery tickets.
Lower rates: Ohio cut its lottery withholding to 2.75% for 2026 as it moved to a flat income tax, and Pennsylvania's flat rate is 3.07%.
Higher rates: New York's top rate is 10.9%, and New York City residents pay up to 3.876% more. Maryland withholds 9.5% from residents and 8.75% from nonresidents on prizes over $5,000, as of July 1, 2025. New Jersey withholds 8% on lottery payouts over $500,000, Wisconsin 7.65% and Minnesota 7.25%. Withholding and the tax you finally owe can differ; your state return settles it.
Applied to the $210 million lump sum (approximate; actual state tax depends on brackets and credits):
| Where the winner lives and bought the ticket | State (and city) tax | Kept after federal and state |
|---|---|---|
| Florida, Texas or California* | $0 | about $132.3M |
| Pennsylvania (3.07%) | about $6.4M | about $125.9M |
| Maryland resident (9.5% withholding rate) | about $20.0M | about $112.4M |
| New York State (10.9%) | about $22.9M | about $109.4M |
| New York City resident (14.776%) | about $31.0M | about $101.3M |
*California's exemption covers California Lottery tickets; it has no local income tax.
On the same $500 million jackpot, a Houston resident would keep roughly $31 million more than a Manhattan resident. Our lottery tax rates by state table has every state, and New York's lottery taxes get their own post.
What if you bought the ticket in another state?
The state where the ticket was sold usually taxes and withholds first. Your home state then taxes the prize as a resident's income and generally gives you a credit for tax paid to the other state. The result is that you usually pay about the higher of the two states' rates, not both. Buying a ticket in Pennsylvania won't save a New York resident from New York's rate.
Before you claim a large prize
- Secure the ticket. Sign it unless you plan to claim through a trust or entity in a state that allows that, in which case ask a lawyer first.
- Hire a tax attorney and a CPA before you claim, ideally ones who have handled large windfalls.
- Run the lump-sum and annuity numbers with them, including state tax in each scenario.
- Plan any charitable giving before the end of the tax year in which you're paid.
Jackpot taxes: common questions
How much tax is taken out of lottery winnings immediately?
Federal withholding is 24% when the prize, minus the ticket cost, is over $5,000. State withholding comes on top where it applies, from nothing in states such as Florida and Texas to 10.9% in New York, with up to 3.876% more for New York City residents.
Is 24% federal withholding the final tax on a jackpot?
No. A jackpot is taxed mostly at the 37% top rate, which in 2026 starts at $640,600 of taxable income for single filers. The remaining 13 percentage points or so are due with your tax return.
Which states don't tax lottery winnings?
California (for California Lottery prizes), Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Alaska and Nevada have no income tax but no lottery either.
Do I pay tax in the state where I bought the ticket or where I live?
Often both have a claim. The state that sold the ticket withholds first, and your home state usually gives a credit for that tax, so you end up paying roughly the higher of the two rates rather than both added together.
How much of a $500 million jackpot do you take home?
At a cash value of about 42%, roughly $132 million in a state with no lottery tax, or about 26% of the advertised amount. In New York City it's closer to $101 million.
Sources: Powerball prize chart and homepage; IRS Instructions for Form W-2G (Jan. 2026); IRS 2026 inflation adjustments; Comptroller of Maryland Tax Alert (July 2025); Ohio HB 96; New Jersey Division of Taxation. Estimates assume a single filer taking the lump sum and are approximations, not tax advice.
