What You Need to Know About a Lottery Jackpot

A lottery jackpot is one big pile of money, and it’s something most of us would love to win. But before you start lining up at the ticket booth, there are a few things you need to know.

Lottery winners have to decide whether to receive a lump sum payout or an annuity that provides a series of annual payments. Most choose the lump sum option, because it allows them to invest the funds and potentially make more money than they’d get in annual interest payments. However, many factors go into the final decision. “It depends on the winner’s tax rate, what their investment goals are and how they feel about taking a risk,” Blenner says. Those risks include the chance that they could lose some or all of their winnings to taxes.

The IRS withholds 24 percent of your winnings to pay federal taxes if you take the lump sum option, Blenner says. If the prize was a billion dollars, that would mean you’d have to pay about 37 percent in federal income tax if you were a single filer or married filing jointly. Adding state and local taxes could push the bill even higher.

That’s why lottery organizers have been making the prizes harder to win for decades, Matheson says. If they made the odds too easy, they’d be liable to lose a winner every week and the pot wouldn’t grow. But if they made the odds too hard, people might stop buying tickets. In the end, they’ve found a sweet spot that lets them offer a roughly 1-in-292 million chance of winning and still attract enough players to keep the pot growing.