Why Record Lottery Winners Keep Only About 60% of the Cash Value

Every billion-dollar jackpot headline uses the annuity figure. The money a winner can actually spend is a much smaller number, and the path from one to the other is the same every time: cash value, then federal tax, then state tax.

Three real record jackpots

The full list of 15 billion-dollar jackpots, with where each ticket was sold, is on this page of the largest lottery jackpots ever won.

Step 1: the advertised number is an annuity

The headline figure is the total of 30 payments that grow 5% a year. The cash value is the money in the prize pool today, usually 45 to 50% of the headline. On the $2.04 billion record, cash was $997.6 million. If you want to see how the 30-payment schedule adds up to the headline, a Powerball annuity calculator lists every payment.

Step 2: the federal 37% bite

At these sizes, virtually the whole prize sits in the top 37% bracket. On $997.6 million that is about $369 million, leaving roughly $628.5 million. California does not tax its lottery winnings, so that is where the California winner stops.

Step 3: the state

Arkansas and South Carolina do tax lottery prizes, which is why their winners keep a smaller share of a similar cash value. South Carolina's lottery said the state would collect about $61 million from its 2018 winner. Compare all 50 states in this lottery tax by state table.

The rule of thumb

Advertised jackpot × about 0.47 for cash × about 0.63 after federal tax gives a fast estimate for a no-tax state. That is roughly 30% of the headline, or about 60% of the cash value, before any state tax. A $2 billion headline is a $600 million-ish reality.

Figures are estimates for illustration, not tax or financial advice.