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So you didn’t win the $555 million Mega Millions jackpot last night.
Glass half full scene? Oh! You dodged a huge tax bill.
Of course, you get another shot at the next drawing with a windfall advantage—and then give Uncle Sam a boatload of it. The top prize of the National Lottery game has passed the half-billion dollar mark and is valued at an estimated $630 million for Friday night.
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If won over that amount, it would be Mega Millions’ fifth biggest prize ever, but may not break into the top 10 biggest jackpots of all time.
And, it will come with a big 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 are a bigger loss than any winnings.
$86.3 million will 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 Your winnings on that amount will be reduced by $86.3 million.
However, because the top federal marginal tax rate is 37%—which applies to income Over $539,900 as a single taxpayer or $647,850 for married couples Filing Jointly – You can expect to owe more at tax time.
According to the American Institute of CPAs, one way to reduce your tax bill is to think philanthropically: You can contribute up to 60% of your adjusted gross income in cash, to a public charity or donor-advised fund, and receive a tax deduction. for the amount in which you donate. You can also create a private foundation, donate the proceeds to it and then over time determine how to employ it.
If there is no reduction in your income, another 13%, or $46.7 million, will be due to the IRS ($133 million in total).
This would reduce the windfall to $226.7 million.
State taxes can be either withheld or payable. Unless you live where there is no income tax or lottery winnings are not taxed, those fees can exceed 10%, depending on where you bought the ticket and where you live. .
Still, even after a big tax bill, most people will have a lifetime windfall advantage. It is recommended that the jackpot winners assemble a team Professionals to help navigate the claims process, including an attorney, financial advisor and tax advisor.
The probability of a single ticket matching all six numbers drawn in Mega Millions is about 1 in 302 million. For the Powerball – whose jackpot is estimated at $101 million for Wednesday night’s drawing – it is 1 in 292 million.