NEW YORK — The next drawing for the $1.55 billion record-breaking Mega Millions jackpot is Tuesday night on Aug. 8, 2023. While millions of Americans with tickets are counting every possible way they’d spend this massive payout, you might want to take a time out — because Uncle Sam wants his cut too! Yes, if there’s a Mega Millions winner in this drawing, they’ll see a hefty chunk of change go to the government. So, how much exactly will come out of the jackpot for taxes?
First of all, billion-dollar jackpots are starting to become the “new normal” for lottery players! This $1.55 billion Mega Millions drawing is the fifth payout to cross the billion-dollar mark in the game’s history, according to lottery officials in a statement. It’s also the third-largest prize in Mega Millions history. On Aug. 4, 2023, no one matched all six numbers (11, 30, 45, 52, 56, and Mega Ball 20) for the previous jackpot, worth more than $1.25 billion.
Whoever ends up winning will definitely beat the odds, since the odds of winning the Mega Millions grand prize are 302 million-to-one! Hey, you’ve gotta be in it to win it, right? Unfortunately, your time as a billionaire won’t last very long, once you factor in all the taxes the government will be deducting from the $1.55 billion prize. So, the biggest question many people probably have is: how much am I really getting? Well, that actually comes down to two major factors.
Lump sum or annuity?
The first factor is how you want that money paid out, in one lump sum or in a 30-year annuity. The lump sum is pretty straightforward, you get the Mega Millions jackpot all up front in one huge check. Meanwhile, anyone opting for the annuity gets one lottery payment up front and then 29 annual payments after that. For those opting for the 30-year annuity, Mega Millions officials say they increase each annual payment by five percent.
“This helps protect winners’ lifestyle and purchasing power in periods of inflation,” lottery officials write on their website.
Here’s where the first major catch comes in. Winners who opt for the lump sum lose around 50 percent of that $1.55 billion jackpot before it ever reaches their bank account! That brings the total of the “cash option” down to $757,200,000.
Mega Millions jackpot taxes are more than you think!
Assuming you opt for the lump sum to avoid the uncertainty of a 30-year payment plan, it’s now time to start deducting the federal government’s share of the Mega Millions winnings. Although the IRS automatically withholds 24 percent of lottery winnings, the government now sees you as an extremely rich person. That means you owe even more in taxes! If the winner opts for the Mega Millions lump sum on Aug. 8, that $757,200,000 becomes part of their 2023 federal income tax return, according to Kiplinger.
This sudden increase in income shoots the winner into the nation’s highest tax bracket of 37 percent. So, on top of the 24 percent the IRS just took out (about $181.7 million), the winner owes another 13 percent to the federal government. In total, that comes out to over $280,100,000.
So, from $1.55 billion, your historic Mega Millions jackpot is now down to (approximately) $477,000,000 thanks to taxes — and you haven’t even bought a new car yet!
Some states don’t charge taxes on lottery winnings!
The second major factor in figuring out how much of the Mega Millions jackpot you’ll actually see is the state you live in. Since local taxes vary throughout the United States, this answer will change drastically depending on where the winner is.
However, for people in Delaware, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, they’re off the hook because these states don’t charge income taxes on lottery winnings! Although California’s taxes are sky-high, they also don’t tax Mega Millions winners. Moreover, Alaska and Nevada don’t sell Mega Millions tickets, but residents are allowed to buy them from other states.
For everyone else, unfortunately, that $477 million is subject to state taxes, with these taxes ranging from 2.9 percent in North Dakota to a whopping 10.9 percent in New York! So, if someone is “unfortunate” enough to win the Mega Millions jackpot while living in New York on Aug. 8, they would owe another $82.5 million in state taxes! That would drop the Mega Millions lump sum total to approximately $394,500,000.
That may be enough money for the rest of your life, but it certainly isn’t $1.55 billion! Thanks a lot, Uncle Sam.
Due to the number of people buying tickets for this jackpot, the actual grand prize will likely grow even larger than $1.55 billion by the time of this drawing.