The Tax Breakdown for Mega Millions and Powerball Winners

Last week’s Mega Millions and Powerball is still waiting for a lucky winner! The Mega Millions jackpot is up to $1.6 billion (the largest jackpot in lottery history) and Powerball’s top prize is at $620 million. While we are anxiously waiting for a winner to be named there’s one thing that is for certain…the tax bill that comes with being a jackpot winner.

But, your chances of winning it is pretty low: 1 in 302.6 million.

CNBC writes, “For the Powerball jackpot, meanwhile, your chance of winning is 1 in 292 million. The chance of winning both lotteries is at least 1 in 88 quadrillion (that’s 88 followed by 15 zeros).”

Your next chance to win is this Tuesday night for Mega Millions and Wednesday night for Powerball.

If you so happen to beat the astronomical odds and hit all winning numbers in either game, the taxation of your prize starts before even reaching you.

“If you have a win of, say, $100,000, it’s easier to minimize the tax burden,” said Cari Weston, director of tax practice and ethics for the American Institute of CPAs. “But when it’s this kind of win, it’s going to be harder.”

Whether you take your haul as a lump sum or as an annuity spread out over three decades, your win is reduced by a 24 percent federal tax withholding.

“The immediate cash option for Mega Millions is $904 million. The federal withholding would reduce that by $217 million. For the $354.3 million Powerball lump sum, it would mean $85 million getting shaved off the top.”, says CNBC.

What players should know is that the top income tax rate for individuals is 37 percent. That rate applies to adjusted gross income of $500,000 or more.

“I see the withholding as a good thing,” Weston said. “When people come into a lot of money all at once, the last thing they’re thinking about is their taxes.”

Top 10 lottery jackpots

Rank Amount Date won Game Winner locations
1 $1.6 billion ??? Mega Millions ???
2 $1.586 billion Jan. 13, 2016 Powerball CA, FL, TN
3 $758.7 million Aug. 23, 2017 Powerball MA
4 $656 million Mar. 30, 2012 Mega Millions KS, IL, MD
5 $648 million Dec. 17, 2013 Mega Millions CA, GA
6 $620 million ??? Powerball ???
7 $590.5 million 18-May-13 Powerball FL
8 $587.5 million Nov. 28, 2012 Powerball AZ, MO
9 $564.1 million Feb. 11, 2015 Powerball NC, PR, TX
10 $559.7 million Jan. 6, 2018 Powerball NH

 

You will still owe state taxes on the money unless you live where lottery wins are untaxed. Translation: You might pay north of 45 percent altogether in taxes, depending on where you purchased the ticket and where you live.

The main takeaway is that the tax system is complicated. It is best to enlist the help of a professional to figure out your optimal tax strategies and make sure you are reaping the benefits of your winnings. 

“The key is to be strategic at the front end so you’re ready when tax time comes around,” Weston said.

 

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