The Taxes on a Lottery Jackpot

As lottery organizers know well, big jackpots attract attention and drive ticket sales, as well as free publicity on news sites and TV. The fact that they’re so much harder to win than people might think actually works in the game’s favor, says Victor Matheson, an economics professor at the College of the Holy Cross.

Even if you manage to hit the jackpot, the odds of being able to keep it all for yourself are slim. In the United States, for example, winners must pay federal and state taxes on any winnings. Depending on the payout option and applicable tax rate, this can whittle down a billion-dollar jackpot to something more manageable.

Choosing less common numbers gives you the best chance of not having to split a jackpot with others who have chosen the same numbers. But even the best number-picking software cannot give you a definite advantage.

You can choose a lump sum or annuity payment, but either way the amount you actually get is far less than what you see reported in the headlines. To start with, if you opt for the lump sum payout, the IRS takes 24% off the top to cover federal income taxes. From there, the value of your winnings is whittled down further by your state’s withholding and the top federal tax rate of 37% (for single filers).

Responsible lottery winners dump any money they don’t need into safe investments that will grow over time. This will help them preserve and possibly even increase their wealth. They also plan out how they’ll pass the remaining money on to their loved ones in the event of a calamity.