The Mega Millions lottery top prize reached $493 million for Tuesday’s drawing, an amount of money most of us have trouble even imagining.
Images of grand homes, yachts and airplanes are surely tempting, but with the taxes a lottery winner has to pay, the amount you net in the end may not be what you were expecting.
Mega Millions and other lotteries generally allow a winner to decide how they want to take possession of the jackpot — either by choosing an annuity where the jackpot is paid out over 30 years or by taking the money in one lump sum.
According to lottery officials, most winners opt for the lump sum, or “cash option,” as Mega Millions calls the payout.
In the case of the next Mega Millions jackpot of $493 million, that amount would be $231.1 million. It’s a staggering pile of money, but it’s not exactly what you would pocket following your win.
The federal government and all but a few state governments will immediately have their hands out for a bit of your prize.
The top federal tax rate is 37% for income over $500,000. The first thing that happens when you turn in that winning ticket is that the federal government takes 24% of the winnings off the top.
But the payments don’t end there. You will owe the rest of the tax — the difference between 24% and 37% — at tax time next year.
So, let’s say you decide to take the cash option when you win the Mega Millions jackpot. If the jackpot remains at $493 million for Tuesday’s drawing, the cash option is $231.1 million.
The federal government will immediately take $55,464,000 from that cash option (24%). Remember, the rest of your federal tax bill comes next year and will cost you another $30,001,188.
So, when you take the cash option, you will end up with $145,634,812 after federal taxes.
Now it is the state’s turn.
State tax rates on lottery winnings vary. If you live in Ohio, your state tax rate for lottery winnings is 3.5%. So after federal and state taxes, that leaves you with $137,546,312.
If you live in Georgia, your state lottery tax is 5.49%. After federal and state taxes you’d pocket $132,947,422.
If you live in New York, get out your wallet, because the state taxes lottery winnings at 8.82%. The lump sum most New York residents would get after federal and state taxes would be $120,444,912. Additional taxes are charged if you live in New York City or Yonkers.
If you live in California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming there’s some good news for you — those states do not tax lottery winnings. This means if you live in those states and win, you will get $145,634,812 after federal taxes.
One note: Your winnings could also be subject to local taxes in some states.
Click here for USA Mega, a website that provides information on lotteries in the United States and around the world, and breaks down by state what you would take home if you win the Mega Millions drawing — both the lump sum option and the annuity option.