Mega Millions payout: thirty annual payments, taxed one by one

What the game promises

The Mega Millions FAQ describes the annuity option as "an initial annual payment followed by 29 annual payments", each "5 percent larger than the previous one", and adds that it is based on the actual cash value of the jackpot and the 30-year US Treasury rate (Mega Millions FAQ). The How to Play page repeats the 30 graduated payments (How to Play). Two consequences follow. The annuity is only as large as the cash and the interest rate allow, so the advertised jackpot moves with Treasury yields. And the payments are back-loaded: the last ten pay far more than the first ten.

The schedule, every third year

The three columns move together because the federal tax dominates: on every line, the top 37 % rate of Rev. Proc. 2025-32 applies to almost the whole payment. The gap between them is the state. New Jersey's top rate of 10.75 % applies above $1,000,000 of income, which every payment exceeds; Virginia's 5.75 % top rate starts very low; Washington takes nothing.

Same formula as Powerball, different jackpots

Both games use 30 payments growing 5 % a year, so the first payment is always the same share of the advertised jackpot, 1.51 %, and the last always 6.20 %. What differs between the two games is the size of the jackpot on a given day and the ratio between cash and annuity, which follows interest rates at the time of each drawing. A schedule computed for one game therefore applies to the other by simple scaling, which is what the lottery annuity calculator does for any amount. The Virginia column also hides a trap for a Virginian who bought the ticket in Maryland or another state that taxes nonresidents: Virginia gives no credit on lottery winnings, so each installment would then be taxed twice.

Thirty tax returns, not one

Each installment comes with its own Form W-2G and its own 24 % federal withholding (Form W-2G instructions). The real federal tax on a payment of $6,216,243 is about 36.5 %, so each year leaves a balance to pay with the return or by estimated tax. An annuitant who plans only for the first year can be caught in the later years, when the payments are twice as large. The withholding calculator shows the gap for one payment; the calculator above shows it for all 30 when you choose the annuity.

A move changes the state column

State tax is decided each year by where the winner lives that year, with one exception: the state that sold the ticket may keep taxing the installments as income from its lottery, even after the winner leaves. New York says so explicitly (Publication 140-W), and so does Ohio, while the official texts of many states are silent. A New Jersey winner who moves to Florida in year ten stops paying New Jersey tax as a resident; whether New Jersey still taxes later installments as a nonresident's New Jersey lottery income is a reading of its rules that moving after winning sets out, with the states that answer and those that do not.

The heirs keep the schedule

Mega Millions states that if an annuity winner dies before receiving all annual payments, the payments continue as scheduled to the designated beneficiary or to the estate (Mega Millions FAQ). The heirs report each installment as income when it arrives. The payments not yet received are part of the estate, which can create an estate tax due long before the money arrives; estate tax is outside these calculators.

Cash or annuity for Mega Millions

For the New Jersey winner of the summary, the cash option leaves $89,042,869 today, the annuity $217,626,055 spread over 29 years. The annuity total is larger, but most of it arrives late, so the comparison depends on the return the cash could earn and on how long the winner expects to wait. Lump sum or annuity computes the return at which both are equal. The figures describe tax rules; they are not advice, and gambling should stay a paid entertainment. Help: 1-800-MY-RESET.