The advertised jackpot is fiction. Here’s the real number.

Step one: the lump-sum haircut

The advertised jackpot — the big number on the billboard — is the 30-year annuity value. It assumes you take annual payments that grow over three decades. Almost no one does that. Nearly every winner elects the lump-sum cash option, which is what the game actually has on hand to pay out. Recently, that cash option has been running at roughly 43–47% of the advertised figure.

So the $825M billboard becomes a $385.3M cash-option line on your claim form. That’s before a single tax has touched it.

Step two: federal withholding

The IRS requires lottery operators to withhold 24% of any prize over $5,000 up front. That is not your federal tax — it is a deposit on your federal tax. On $385.3M, that’s about $92.5M withheld at the window.

This is the first place most online calculators stop. It’s also where most winners get blindsided: 24% is not the rate you owe. It’s just the rate the government collects on the way out.

Step three: the top federal bracket

A $385M prize puts you square in the 37% federal bracket. Your actual federal bill is closer to 37%, not 24%. The 13-percentage-point gap — around $50 million on this prize — is money you owe the IRS at filing the following April.

This is the single biggest surprise for new winners. They see the withholding stub, it feels close enough to the full value, and they quietly spend months feeling wealthier than they are. Then Tax Day comes and the accountant hands over a piece of paper that ruins lunch.

If you learn one thing from this post: 24% withheld is not 37% owed. Budget for the whole 37%.

Step four: state income tax

Now the 50-state patchwork. Nine jurisdictions take nothing: seven states with no income tax (Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming), plus California and Delaware, which have income tax but specifically exempt lottery winnings. Everyone else takes a cut — some flat, some bracketed, some with a gap between what’s withheld and what’s owed.

On our example, a winner in Indiana pays a flat 2.95% — about $11.4M. A New Yorker pays closer to 10.9%. A Californian pays zero state tax on the same ticket. Same numbers, different mailbox, tens of millions of dollars of difference.

Step five: the local layer nobody warns you about

Several jurisdictions levy a county or city income tax on top of state tax — and some specifically reach lottery prizes. In Marion County, Indiana (home of Indianapolis), the local tax adds 2.02% — about $7.8M on this ticket — and, critically, it is not withheld by the lottery. You owe it at filing, on top of the federal true-up. New York City adds 3.876%; Yonkers adds its own surcharge; Maryland has 24 county rates.

This is the layer we spent the longest on at Lottery Dreams — the app models 119 county and city options, because that’s where the surprises live.

The bottom line on an $825M ticket

That’s about 27% of the billboard. The other 73% is gone — to the annuity haircut, the IRS, your state, and sometimes your county. The “billion-dollar” jackpots aren’t billion-dollar prizes. They’re hundreds-of-millions-of-dollar prizes. Still incredible. Still life-altering. Just not the number on the sign.

Want tonight’s version of this math, for your state? It’s on our homepage, computed live.