Mega Millions Jackpot Tax: What is It?

When someone wins a Mega Millions Jackpot, he or she is not the only winner. There are two other entities that should also be counted: the federal government and the state government. The amount of money the winner will receive in Mega Millions and other such lottery draws is huge. For example, the next Mega Millions Jackpot of $1.28 billion would be around $747.2 million. After you claim your share, you will owe a big chunk of this prize money in taxes.

But the big question is how much money will the lottery winner take home once he or she claims their share?

It is crucial to know how much the winner of a Mega Millions Jackpot will take home and how much he or she will owe in taxes. In the case of the $1.337 billion jackpot, the winner will have the option to choose an annuity or take one lump sum in order to take possession of the jackpot.

Taking Possession of Jackpot: Annuity vs Lump Sum

Since the recently announced jackpot is $1.337, taking the annuity rate means the jackpot will be paid to the winner over a period of 30 years. This means a payment of around $44.57 million per year.

If the winner chooses the other option (lump sum cash payment), the payout will be reduced to $780.5 million.

However, in both cases, the tax amount for the Mega Millions Jackpot has not been considered yet. Whether you opt for an annuity or lump sum cash payment, there is no way you can avoid taxes. And in most cases, the tax bill is going to be huge. If you live in or near the Bronx, you will owe taxes to both the federal government and the New York state government. That is why you should remain fully aware of mega millions taxes by estate. SCL Tax Services in Bronx, NY is an ideal destination to find out more about this as well as business taxes, tax problems, IRS trouble etc.

Federal Taxes on the Mega Millions Jackpot

A big chunk of the mega millions jackpot amount will be paid in federal taxes. At present, the federal income tax rate is 37%. However, the tax rate is slated to increase to 39.6% in 2026. This means, if the jackpot winner goes for annuity payments, he or she will owe a sum of $16.49 million every year in federal income tax from 2022 to 2025 and a sum of $17.65 million every year for the remaining 26 years. The IRS will cut 24% of the lottery money immediately before the winner knows it and he or she will pay the rest at tax time). If you calculate the total amount paid in federal taxes, it will come around $524.85 million. If the tax money is subtracted from the winning amount, the winner will be left with $812.15 million to spend.

On top of that, the mega millions jackpot winner will be able to get this amount of money over a period of 30 years.

Let us now discuss the other option: lump sum payment. If the winner takes this route, the payout will be $780.5 million. Out of this, he or she will owe $288.8 million in federal income taxes for the first year. The IRS will again cut 24% of the winning amount straight away and the rest will be paid when you file your income tax return for the year 2022. In this case, the winner is left with $491.7 million to spend. Though this is less than what the winner will receive in annuity payments, the winner will not have to wait for several years to get this money.

Getting a lump sum cash payment immediately also provides you with an excellent opportunity to invest and grow the money. For more information on this, feel free to reach out to one of our tax professionals for expert tax help. SCL Tax Services in and near Bronx is a small firm where you will find solutions to all tax related matters including IRS troubles and tax problems.

 

State Taxes on the Mega Millions Jackpot

In addition to federal taxes, you owe taxes to the state where you live. State taxes vary from one state to another. If you live in the state of Illinois, you will be charged a flat tax rate of 4%. Likewise, every state has its own income tax rate, which is high in some states and low in others.

If the mega millions jackpot winner chooses the annuity payment option, the state tax on annual payment of $44.57 million will come around $2.2 million per year. This means, over a period of 30 years, the winner will pay a total of $66.2 million in state taxes. If you add up both the federal taxes and state taxes on mega millions jackpot under the annuity payment option, the total tax bill will be around $591.05 million and an estimated tax bill of $745.95 million.

Taking the lump sum payment option route, the winner will owe $38.63 million in state taxes. Also be informed that the state will take the tax amount straight away before you receive the prize money.

In this case, federal and state taxes together will add up to $327.43 million, leaving the winner with $324.2 million to spend.

Filing Your 2022 Tax Return

When you file your income tax return next year, you should never make the mistake of reporting a different amount than what you won in the Mega Millions jackpot lottery. This is because the IRS already has a copy of Form W-2G, which you will receive with the information about your winnings.

 

Still Have a Question?

If you still have a question about mega millions taxes by state or want us to help you with your tax problem or IRS trouble, head over to SCL Tax Services in and near Bronx, NY. We specialize in a number of tax-related services including business taxes, payroll service, tax accounting and bookkeeping service. Reach out to one of our tax consultants for expert help and advice.

For your free consultation, you can call our Bronx office or write us an email using the contact form.

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