Mega Millions: How much tax would you pay if you won the $977 million jackpot?

While the Mega Millions jackpot is approaching $1 billion, the lucky winner (if one is selected) will not see close to that amount enter their bank accounts.

When claiming your winnings, you have two options: cash or annuity. The cash option gives you a lump sum upfront, but the total is lower than what you would receive if you chose the annuity payments distributed over thirty years.

First, let’s take a look at how taxation affects the cash prize winnings option. For this week’s $977 million Mega Millions jackpot, the cash prize would be $461 million.

Right off the bat, one must consider that the federal government taxes lottery winnings at 24 percent, knocking the cash prize down to a mere (wink wink) $350,360,000. The IRS can also tax the winnings as income, which would increase the tax rate to 37 percent since that is the rate applied to incomes over $500,000. But to simplify things, let’s stick with the 24 percent tax rate for now.

If one were to pick the annuity option, they would receive the total jackpot over thirty years, with an average payment of around $32,566,667 distributed annually. After the twenty-four percent tax has been applied, the winner would receive $24,750,667.

How do states tax Mega Millions lottery winnings?

Additionally, some states that allow residents to play Mega Millions levy their own taxes on lottery winnings, shrinking them even further. The only states that do not tax lottery winnings where Mega Millions can be played are California, Delaware, Florida, South Dakota, Tennessee, Texas, Washington, and Wyoming.

The states with the highest tax rates on lottery winnings are New York (8.82 percent), Maryland (8.75 percent), New Jersey (8 percent), Oregon (8 percent), Wisconsin (7.65 percent), Minnesota (7.25 percent), Arkansas (7 percent), South Carolina (7 percent), Connecticut (6.99 percent), and Idaho (6.93 percent).