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If you manage to beat the odds and get to the next Mega Millions jackpot, don’t forget that Uncle Sam will snatch a piece of the windfall.
The top prize for Tuesday night’s drawing has risen to $790 million after no tickets matched all six numbers drawn on Friday night. If that amount is won, it will be the fourth highest lottery prize ever.
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.
For this $790 million jackpot, the cash option – which most winners choose – is $464.4 million. a Mandatory 24% federal tax withholding Your winnings on that amount will be reduced by $111.4 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 $60.4 million, will be due to the IRS ($171.8 million in total).
This would reduce the windfall to $292.6 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 sizable tax bill, the windfall gains will more than likely be seen by most people in a lifetime. 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 $130 million for Monday night’s drawing — it’s 1 in 292 million.