Lottery Payments

Getting the Prize

Many people do not realize that lottery winners are not necessarily paid out in a one lump sum. In the United States of America the winner has to make a decision before receiving the lottery payment. There are two options available when receiving your money. You can receive your lottery payments annually for a number of years. Or, the second option is receiving your prize in one lump sum. The winner has to choose which method that they would prefer.

Series of Annual Lottery Payments

When this method is chosen, the winner basically is signed up to get a series of payments over several years. When $10 million is won, you only receive 2.5 percent of the total once you have sent in the winning ticket. Then one year later you get another lottery payment, but this time for 2.7 percent. Each year the amount goes up by a tenth of a percent, until 5 percent is reached. That will be the very last payment. It is guaranteed that funds for these payments are available because the lotteries buy bonds and once they have matured they are automatically transferred to the lottery payment account. The payment period can range from 10 to 40 years. And of course taxes are withheld from each payment.

Lump Sum Lottery Payment

The one-time payment or lump sum lottery payment is much smaller. It is half of the advertised lottery jackpot. So if you got the prize of $10 million, only $5 million would be yours. Yet many people still choose this option because they want to invest the money and try to do a little better that the 5-percent interest that the bonds would earn. With the lump sum payment, taxes have to be deducted as well. If your winnings were in the millions then you would be paying approximately 39.6 percent in federal taxes.

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