With no ticket matching all six numbers in the Mega Millions drawing on Tuesday night, the jackpot has surged higher yet again.
Now at $444 million, the top prize has been growing for more than two months through twice-weekly drawings with no winner. The Powerball jackpot, meanwhile, isn’t too far behind: $325 million for Wednesday night’s drawing.
And while the odds are stacked against players snagging the bonanza in either game, the IRS is always a guaranteed eventual winner.
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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.
“All of the numbers involved in these huge jackpots are staggering, and the taxes are no exception,” said Jason Kurland, a partner at Rivkin Radler, a law firm in Uniondale, New York.
For Friday night’s $444 million Mega Millions jackpot drawing, the cash option — which most winners go with — is $281.1 million. The 24% federal withholding would reduce that amount by $67.5 million.
Assuming you had no reduction to your taxable income — such as large charitable contributions — another 13%, or $36.5 million, would be due to the IRS at tax time. That would be $104 million in all going to Uncle Sam.
This means that after federal taxes, you’d be left with a cool $177.1 million.
For Wednesday night’s $325 million Powerball jackpot drawing, the cash option is $205.2 million. The 24% federal withholding would reduce that by $49.2 million, with another 13%, or $26.7 million, due at tax time. In all, that would be $75.9 million going to federal coffers, leaving you with $129.3 million.
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State taxes in both games would be on top of what goes to the IRS. They 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.
However, most players won’t need to worry about it. Your chance of winning Mega Millions is about 1 in 302 million. For Powerball, it’s 1 in 292 million.