The Mega Millions lottery drawing stands at $1.6 billion as of Monday, an amount of money most of us have trouble just imagining.
Images of homes, boats and airplanes are surely tempting, but with taxes on taxes a winner has to pay, the amount you net in the end may not be what you were expecting.
That’s not to say that getting $600 million is nothing, you just may want to scale back on the Learjets.
Mega Millions and other lotteries generally allow a winner to decide how they want to take possession of the jackpot – either by choosing an annuity where the jackpot is paid out over a 29-year period or in a lump sum. Most winners take the lump sum.
In the case of Tuesday’s $1.6 billion jackpot, that amount would be $904,900,000. It’s a staggering pile of money, but it’s not exactly what you would pocket following your win.
The federal government and all but a few state governments will immediately have their hands out for a bit of your prize.
The top federal tax rate is 37 percent on income of more than $500,000 for individuals. The first thing that happens, tax-wise, when you win is that the federal government takes 24 percent of the winnings off the top. You will owe the rest of the tax – the difference between 25 and 37 percent – at tax time next year.
So, for the $1.6 billion, the federal government will immediately take $217,176,000, leaving you $687,724,000. Remember, the rest of your federal tax bill comes in April.
Now, it is the state’s turn. State tax rates vary. If you live in North Dakota, your state tax rate for lottery winnings is 2.9 percent. That means if you take the lump sum and the federal and state government both get their shares, you are left with $661,481,900. If you live in New York, get ready to get off your wallet because that state taxes lottery winnings at 8.82 percent.
The lump sum most New York residents would get after federal and state taxes would be $607,911,820. Additional taxes are charged if you live in New York City or Yonkers.
If you live in California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming there’s some really good news for you – those states do not tax lottery winnings. Meaning if you win Tuesday, you will get $687,724,000.
One note: Your winnings could be subject to local taxes in other states as well.
Here from USA Mega, a website that provides information on lotteries in the United States and around the world, is a breakdown by state of what you would take home if you win the Mega Millions drawing – both the lump sum option and the annuity option.
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