So you didn’t win the $555 million Mega Millions jackpot last night.
The glass half-full view? Phew! You dodged a huge tax bill.
Of course, you get another shot in the next drawing to land a windfall — and then give a boatload of it to Uncle Sam. The national lottery game’s top prize has rolled even farther past the half-billion-dollar mark and is worth an estimated $630 million for Friday night’s pull.
If won at that amount, it would mark Mega Millions’ fifth-largest prize ever, but does not crack the top 10 biggest jackpots of all time.
And, it would come with a sizable tax bill. Whether the prize is taken as an annuity of 30 payments over 29 years or as an immediate, reduced cash lump sum, taxes end up taking a big bite out of any winnings.
$86.3 million would be withheld right off the bat
For this $630 million jackpot, the cash option — which most winners choose — is $359.7 million. A mandatory 24% federal tax withholding on that amount would reduce your winnings by $86.3 million.
However, because the top federal marginal tax rate is 37% — which applies to income above $539,900 as a single taxpayer or $647,850 for married couples filing jointly — you could expect to owe more at tax time.
One way to reduce your tax bill is to think charitably, according to the American Institute of CPAs: You can contribute cash, up to 60% of your adjusted gross income, to a public charity or a donor-advised fund and get a tax deduction for the amount in the year you make the donation. You could also create a private foundation, donate income to it and then determine over time how to employ it.
If you had no reduction in income, another 13%, or $46.7 million, would be due to the IRS ($133 million in all).
That would reduce the windfall to $226.7 million.
There also could be state taxes either withheld or due. Unless you live where there’s no income tax or lottery wins aren’t taxed, those levies could be more than 10%, depending on where you bought the ticket and where you live.
Nevertheless, even after a big tax bill, the windfall would be more than most people see in a lifetime. It’s recommended that jackpot winners assemble a team of professionals to help navigate the claiming process, including an attorney, financial advisor and tax advisor.
The chance of a single ticket matching all six numbers drawn in Mega Millions is about 1 in 302 million. For Powerball — whose jackpot is an estimated $101 million for Wednesday night’s drawing — it’s 1 in 292 million.