- The Mega Millions lottery winning jackpot is a record $1.537 billion.
- The winner of this lottery will come away with a lot less than you might think.
- Whoever wins the Mega Millions lottery could face over 40 percent in taxes.
A winner has been confirmed, though not announced, in the historic Mega Millions estimated jackpot prize of $1.537 billion. The winning ticket was sold at a convenience store in South Carolina, with the winning numbers being 5, 28, 62, 65 and 70, with a Mega Ball of 5. The winner has 180 days to claim the prize and can opt to remain anonymous.
If you were lucky enough to be the winner of this historic jackpot, you have two options: take a lump sum or an annuity with annual payments over 30 years. If you take the annuity, you’ll get one payment immediately, and then 29 additional annual payments. The amount of each payment increases 5 percent per year. The total of all 30 payments is equal to the jackpot amount. If the jackpot is $1.5 billion, the first payment would be about $22.5 million. The cash option is $878 million, which gives you a lot of options of how to spend it until you take taxes into consideration.
The Real Dollar Figures of Winning This Lottery
If you were to take the cash option of $878 million, about $210,720,000 will be withheld for federal taxes. Then you’d still need to pay roughly $114,140,000 when your tax return is due. Then, there are state taxes on the winning amount. For South Carolina’s 7 percent state tax, that comes out to an additional $61.46 million, or a total tax liability of $386.32 million.
The South Carolina winner’s lump-sum take-home pay will be $491.68 million. Too bad the ticket wasn’t won in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming. Those states have no income tax.
Taking the annuity payment means you’ll pay the taxes a little at a time, just as you get your winnings each year. The first annuity payment of $22.5 million will have a federal tax burden of about $8.3 million. South Carolina and its 7 percent income tax equals another $1,575,000 in taxes, leaving you with roughly $12.6 million.
The Lottery Tax Burden
The jackpot is always the before-tax number. Lottery winnings are considered income, so you will pay regular federal, state and local income taxes on your winnings with either the lump sum or annuity option. Before you even leave the lottery office, your winnings will be reduced by withholding. Federal tax withholding is 24 percent. State tax withholding varies by state — some states do not withhold anything, others withhold an amount equal to the state income tax.
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The top federal tax bracket, which you will be in regardless of whether you choose the annuity or lump-sum option, is 37 percent, so you’ll also owe the difference of 13 percent when you file your taxes. For state and local taxes, you might owe additional tax beyond what’s withheld.
Where you buy your ticket matters. Arizona and Maryland have non-resident withholding rates, so if you live elsewhere but buy your ticket in one of those states, you might have double the taxes withheld. If you didn’t win the lottery this week, take solace in the huge amount you’ve saved in taxes. And remember, there are a lot of things you’re more likely to do than win the lottery.
Read more about tax loopholes and strategies the rich don’t want you to know about — in case you do win the lottery in the future.
More on Taxes
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- If You Can’t Pass This Quiz, the IRS Is (Probably) Coming After You
- These 15 Countries Pay More in Taxes Than Americans
- Watch: How to Legally Cheat Your Tax Bracket
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This article originally appeared on GOBankingRates.com: The $1.5B Lottery Jackpot Winner’s Tax Bill Will Be Massive