The Mega Millions jackpot has now surged to $1.02 billion. Here’s the tax bill if you win

Wealth

MARK RALSTON | AFP | Getty Images

The Mega Millions jackpot just won’t quit.

After no ticket matched all six numbers drawn Tuesday night, the top prize has surged to $1.02 billion for Friday night’s drawing. It marks the fourth time a lottery jackpot has crossed the $1 billion mark.

While the chance of a single ticket hitting the motherlode is roughly 1 in 302.5 million, there’s always a guaranteed winner: Uncle Sam.

More from Personal Finance:
Millennials’ average net worth doubled during pandemic
Social media ‘FOMO’ drives bad spending habits
This withdrawal strategy can help retirees stretch savings

Whether the windfall 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.

For this $1.02 billion jackpot, the cash option — which most winners choose — is $602.5 million. A mandatory 24% federal tax withholding on that amount would reduce your winnings by $144.6 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 deploy the money. 

If you had no reduction in income, another 13%, or $78.3 million, would be due to the IRS ($222.9 million in all).

That would reduce the windfall to $379.6 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.

Meanwhile, the Powerball jackpot is an estimated $145 million for Wednesday night’s drawing. Your chance of winning the top prize in that game is about 1 in 292 million.

Products You May Like

Articles You May Like

Stocks making the biggest moves midday: Bed Bath & Beyond, AMC, First Solar, Palantir and more
Spirit Airlines posts loss on surge in costs, expects Florida challenges to continue
Stocks making the biggest moves premarket: Expedia, Block, Lyft and more
More Americans are working part-time — a potential harbinger of future jobs market instability
Bed Bath & Beyond shares jump more than 50% as message board mentions soar on the troubled, heavily shorted stock

Leave a Reply

Your email address will not be published.