Lottery Taxes

The Mega Millions jackpot has climbed to $489 million, putting one of the biggest lottery prizes of the year back in the spotlight. But the figure that matters most to a winner is much smaller once taxes and payout choices enter the picture. No ticket matched all six numbers in Tuesday night’s drawing, which kept the prize rolling and pushed the jackpot closer to the $500 million mark. The six numbers drawn were 48, 51, 60, 63, 66, and Mega Ball 20. Cash versus installments A winner in the next drawing would be able to choose between the full $489 million paid out over 30 annual installments or a lump sum of $220.9 million. For many winners, the cash option is the more tempting route, even though it comes with an immediate drop in value. If the lump sum is chosen, the payout would fall to around $167.9 million after the mandatory 24% federal withholding. A higher federal marginal rate of 37% could reduce the winnings further to about $139.2 million, depending on the winner’s taxable income. The installment option would start at roughly $16.3 million a year before taxes. After the 37% federal marginal rate is applied, those annual payments would fall to about $10.27 million. State taxes can change the final number Where the winner lives could make a major difference. Some states tax lottery winnings, including New York at 10.9%, while others such as Texas, Florida, and California do not. That means the final amount could vary widely even before any personal tax situation is considered. The advertised jackpot is only the starting point for the real take-home total. What comes next The next Mega Millions drawing is scheduled for Friday night, while Powerball is set to draw on Wednesday night with a jackpot that has risen to $327 million. Mega Millions odds remain steep at 1-in-290.4 million, only slightly better than Powerball’s 1-in-292.2 million. For context, the biggest Mega Millions prize of the year so far came in March, when a ticket sold in Illinois won $533 million. The largest Powerball jackpot of the year so far is a $250.8 million prize claimed by a player from Arkansas. Read more at: www.forbes.com

Mega Millions Nears $500 Million, But The Take-Home Amount Shrinks Fast