With no one hitting all the winning numbers in Tuesday night’s Mega Millions drawing, the jackpot has jumped again.
Now at $393 million, the top prize has been climbing for more than two months. And while the odds are stacked against players winning — your chance is 1 in about 302 million — the IRS wastes no time getting a slice of every big lottery win.
“Winners are surprised by how much is withheld in taxes from the initial payment, and then how much more is owed when they file their taxes the following year,” said Jason Kurland, a partner at Rivkin Radler, a law firm in Uniondale, New York.
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“All of the numbers involved in these huge jackpots are staggering, and the taxes are no exception,” said Kurland, who helps big lottery winners navigate their windfall.
Whether you take the prize as an annuity spread out over three decades or as an immediate, reduced lump sum, 24% is withheld for federal taxes. However, the top marginal tax rate of 37% means owing a lot more to the IRS at tax time. State taxes typically are due, as well.
For Friday night’s Mega Millions drawing, the cash option — which most winners go with — is $244.2 million. The 24% federal withholding would reduce that amount by $58.6 million.
Assuming you had no reduction to your taxable income — such as large charitable contributions — another 13%, or $31.7 million, would be due to the IRS. That would be $90.3 million in all going to Uncle Sam.
This means that after federal taxes, you’d be left with $153.9 million.
Then there are state taxes, which range from zero to more than 8% depending on where the ticket was purchased and where the winner lives.
In other words, you could end up paying more than 45% in taxes.
Nevertheless, the after-tax amount would be life changing. Experts say large lottery winners should assemble a team of experienced professionals — an attorney, a tax advisor and a financial advisor — to help navigate the windfall.
Meanwhile, the Powerball jackpot is an estimated $288 million for Wednesday night’s drawing.
The last time there was a top-prize winner in that game was on March 28, when a Wisconsin man nabbed a $768.4 million jackpot. Manuel Franco, who claimed his haul in late April, chose the lump sum cash option of $477 million. After federal and state tax withholdings, he received $326 million.