How to Calculate Annual Installments for a Lottery

How to Calculate Annual Installments for a Lottery
You must take into account tax rates when calculating annual installments.

Step 1

Calculate your pre-tax annual installments by dividing your total earnings by the number of installments. Given winnings of $2 million and 20 installments, divide $2 million by 20 installments to get pre-tax annual installments of $100,000.

Step 2

Multiply your pre-tax annual installments by the federal tax rate to determine how much federal tax you must pay each year. Given a federal tax rate of 35 percent, multiply $100,000 dollars by 35 percent to get $35,000.

Step 3

Determine how much state tax you must pay each year by multiplying your pre-ax annual installments by your state tax rate. Given a state tax rate of 5 percent, multiply $100,000 by 5 percent to get $5,000.

Step 4

Subtract your yearly federal and state tax payments from your pre-tax annual installments to calculate your annual installments for the lottery. Given earnings of $100,000 and federal and tax payments of $35,000 and $5,000, respectively, subtract $35,000 and $5,000 from $100,000 to obtain winnings of $60,000 per year over a 20 year period.