An annuity, in which the prize is paid out over a 30-year period, or taking it as a lump sum are both options available to jackpot winners in Mega Millions and other lotteries. Lottery officials claim that the majority of winners choose the lump sum, or “cash option,” as Mega Millions refers to the payoff.
That sum would be $250.4 million for the upcoming Mega Millions prize of $465 million. Although it’s a huge sum of money, it’s not exactly what you would keep after winning.
The federal government and all but a few state governments will be clamouring for a share of your reward right away.
For income over $500,000, the top federal tax rate is 37%. When you turn in a winning ticket, the federal government deducts 24% of the proceeds as the first thing that happens.
But the payments continue after that. The remaining tax, or the difference between 24% and 37%, will be due when filing your taxes the following year.
Let’s assume that if you win the Mega Millions jackpot, you choose to choose the cash option. The cash alternative is $250.4 million if the jackpot stays at $465 million for the following drawing.
From that cash choice, the federal government will deduct $60,096 right away (24%). Remember that you still owe $32,552,000 in federal taxes, which are due the following year.
Therefore, after federal taxes, if you choose the cash option, you will receive $157,752,000.
The state is now in the lead.
State taxes on winnings from the lottery can vary. The state tax rate for lottery winnings in Ohio is 3.99%. Thus, if you choose the cash option and the federal and state governments each receive a portion, you will still have $146,606,000.
Get your pocketbook ready if you reside in New York, as the state levies an 8.82% tax on lottery winnings. After federal and state taxes, the average New Yorker would get a lump amount of $143,383,274. If you reside in Yonkers or New York City, you will pay more taxes.
There is some good news for residents of California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming: those states don’t tax lottery winnings. This implies that you will receive $157,752,000 if you reside in those states and win.
One thing to keep in mind: In some areas, municipal taxes may also apply to your wins.