A jackpot is taxed twice before you ever touch it: first by the IRS, then (in most states) by your state. Here is the complete 2026 picture, layer by layer, so nothing about the math surprises you.
Layer 1: The federal government
The moment you claim a prize over $5,000, federal law requires the payer to withhold 24% for taxes. But withholding is not the same as what you owe. Lottery winnings are ordinary income, and in 2026 the top federal bracket is 37% on taxable income above $640,600 (single filer). A large jackpot puts virtually every dollar into the top brackets, so the true federal bill is far higher than the 24% withheld at the window. On a $10 million lump sum, the IRS keeps roughly $3.7 million — and yes, the standard deduction of $16,100 barely dents it.
Layer 2: Your state
State treatment splits into three groups. Nine states have no income tax at all — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — so winners there owe nothing beyond federal tax. Three more exempt state lottery winnings specifically: California, Delaware and Pennsylvania. Everyone else taxes the prize as ordinary income, from North Dakota’s 1.95%–2.5% up to Hawaii’s 11% and New York’s 10.9% (plus 3.876% if you live in New York City).
Layer 3: The withholding gap
Here’s the trap: states withhold at rates that often don’t match the true liability. New York withholds 8.82% while the top rate is 10.9%. Maryland withholds 8.75% before county taxes. Meanwhile some states, like South Carolina, withhold 7% against a 6% top rate — meaning a refund. Multiply these gaps by millions of dollars and you understand why the first April after a win is the most important tax filing of your life.
Lump sum vs annuity changes the math
The advertised jackpot is the annuity value. The lump sum (cash value) is typically 45–52% of it — and that’s the amount that gets taxed once, all in one year. The annuity pays 30 graduated checks over 29 years, each taxed in the year received, which spreads income across decades and keeps many payments out of the very top brackets. Our state calculator pages model both options payment-by-payment.
The bottom line
As a rough rule of thumb for 2026: a big-jackpot lump sum keeps about 55–60% of the cash value in no-tax states, and roughly 45–55% in taxed states. Never rely on the 24% withholding to be the final number — budget for 37% federal plus your state’s top rate, and let your CPA surprise you with the refund instead of the other way around.