How much tax would you pay if you won a $630-million Mega Millions jackpot?
In the case of an estimated Mega Millions jackpot of $630 million, the winner could take the money up front, which would be less than half of that after taxes.
Rubbing your hands together at the bumper jackpot in this week’s Mega Millions lottery draw? Well, so too is Uncle Sam. Depending on where you live in the United States, you could face a tax bill of more than $150m if your numbers come up.
That’s because gambling winnings of over $5,000 are taxable in the US - and it’s not only federal taxes you have to think about. Your state may also want a cut.
Lump sum of nearly $360 million up for grabs
If you take the money as an up-front, lump-sum payment it won’t be for the full $630 million. The ‘cash option’ payout is “equal to the cash in the Mega Millions jackpot prize pool”, the draw organisers say. In this instance, it works out at $359.7m.
Were you to plump for the ‘annuity option’, on the other hand, you’d get the jackpot in its entirety, but not all at once: an immediate payment of about $9.5m would be followed by annual cheques that increase by 5% each year, to a maximum of about $39m. This option protects people against (somehow) blowing their pot of gold all at once, but comes with the risk of tax hikes leading to higher rates being levied on your prize money further down the line.
The majority of winners tend to go for the lump-sum payment - “most of them want all their money now,” lottery spokesperson Elias Dominguez told ABC - so the tax you’d pay on the ‘cash option’ is what we’re going to focus on in this article.
Say goodbye to almost a quarter right off the bat
Before the money reaches the jackpot winner, it’s subject to a 24% federal tax on gambling winnings - so, if this week’s one-time Mega Millions payout is $359.7 million, that’s about $86.3 million that you’d have to hand over to the IRS straight away. The federal taxman isn’t done there, though…
Say hello to the top income tax bracket
When tax season comes around, you’ll find yourself on the hook for another piece of your lottery money. That’s because a nine-figure Mega Millions win will have pushed you, rather comfortably, into the IRS’ highest income-tax bracket.
Currently, US tax residents must pay a top rate of 37% on annual earnings over $539,900, so you’ll be liable for the 13% difference between that and the 24% applied to gambling winnings. You’ll only have to fork out the top rate on every dollar above $539,900, though; lower levies will be applied to your winnings up to that amount. In short: expect the IRS to lop another $47m or so off that initial $359.7 millioin.
All in all, then, around $133 million in federal taxes will leave you with about $227 million.
The best/worst states for lottery winners
And then it’s time to work out what you owe your state’s tax office.
If you live in one of California, Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington or Wyoming, you have no more tax obligations to worry about. California and Delaware impose state income tax but not on lottery winnings, while the other seven states don’t have an income tax.
We can also forget about Alabama, Alaska, Hawaii, Mississippi, Nevada and Utah, as you can’t play Mega Millions in those states.
Meanwhile, nine states - Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, North Carolina, Pennsylvania and Utah - have a flat income tax rate that’s mostly around the 5% mark. That means you’d have to cough up another $18m or so. The exceptions to that are Pennsylvania and Indiana, which would take 3.07% and 3.23%, respectively, from your winnings.
Elsewhere in the US, you’ll be looking at anything from 2.9% in North Dakota, to 10.75% in D.C., New Jersey and Wyoming, and 10.9% in New York. NY’s top rate is only applied to every dollar earned over $25m, but you’d still be facing a state tax bill comfortably north of $30m.
Check out the full list of state income tax rates in the US
Of course, the likelihood that you’ll actually have to consider any of the above is vanishingly remote. Per CNBC, the chance of a single Mega Millions ticket matching all six numbers is one in 302 million.