Not Financial Advice: It varies by the state where you live.
Around 80 percent of winners choose the lump sum option, which is typically about half of the jackpot amount. Most U.S. lotteries take out 28 percent from the winnings to pay federal taxes. But, if your winnings were in the millions of dollars, you would be paying closer to 39.6 percent (the highest tax bracket) in federal taxes when tax time comes.
Add state and local taxes, and you might end up with only half of your winnings when you are done paying taxes.
So if you had opted for the lump sum prize in the $10 million lottery, the prize would be about $5 million. After federal and state taxes, you'd be left with about $2.5 million paying about $7.5 million for all the taxes.
Can you afford to win an expensive prize? Many people don't realize that some prizes aren't free. Taxes and the ongoing costs of ownership can quickly turn some windfalls into major burdens. What follows is an analysis of some common prizes we'd all like to win and how much it can cost to win them. Learn more at Investopedia.com.