The Mega Millions lottery drawing stands at $615 million as of Tuesday morning, an amount of money most of us have trouble just imagining.
Images of grand homes, yachts and airplanes are surely tempting, but with the taxes a lottery 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 Lear jets.
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 30-year period or by taking it in one lump sum. According to lottery officials, most winners opt for the lump sum, or “cash option,” as Mega Millions calls the payout.
In the case of Tuesday’s $615 million jackpot, that amount would be $451.8 million. 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% for income over $500,000. The first thing that happens when you turn in that winning ticket is that the federal government takes 24% of the winnings off the top.
But the payments don’t end there. You will owe the rest of the tax — the difference between 24% and 37% — at tax time next year.
So, let’s say you decide to take the cash option when you win the Mega Millions jackpot. If the jackpot remains at $615 million for Tuesday’s drawing, the cash option is $451.8 million.
The federal government will immediately take $108,432,000 from that cash option (24%), leaving you $343,368,000. Remember, the rest of your federal tax bill comes in April and will cost you another $58,698,072.
So, when you take the cash option, you will end up with $284,669,928 after federal taxes.
Now it is the state’s turn.
State tax rates on lottery winnings vary. If you live in North Dakota, your state tax rate for lottery winnings is 2.9%. That means if you take the cash option and the federal and state government both get their shares, you are left with $271,567,728.
If you live in New York, get out your wallet, because that state taxes lottery winnings at 8.82%. The lump sum most New York residents would get after federal and state taxes would be $244,821,168. 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 good news for you — those states do not tax lottery winnings. This means if you live in those states and win Tuesday, you will get $284,669,928.
One note: Your winnings could also be subject to local taxes in some states.
© 2021 Cox Media Group