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If you beat the odds and hit the next Mega Millions jackpot, don’t forget that Uncle Sam will take some of the windfall.
The top prize has increased to $790 million for Tuesday night’s drawing after no entries matched the six numbers drawn on Friday night. Winning that amount would make it the fourth largest lottery prize ever awarded.
And, it would come with a big tax bill. Whether the prize is treated as an annuity of 30 payments over 29 years, or as a reduced immediate lump sum, taxes take a big bite out of earnings.
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For this $790 million jackpot, the money option – which most winners choose – is $464.4 million. A mandatory 24% withholding tax on that amount would reduce your earnings by $111.4 million.
However, since the top federal marginal tax rate is 37% — which applies to income over $539,900 as a single taxpayer or $647,850 for married couples filing jointly — you can expect to owe more at tax time.
One way to lower your tax bill is to think charitable, according to the American Institute of CPAs: You can contribute up to 60% of your adjusted gross income to a public charity or donor-advised fund and get a tax deduction. for the annual amount you donate. You can also create a private foundation, give it income and decide how to employ it over time.
If you had no income deduction, another 13%, or $60.4 million, is owed to the IRS ($171.8 million total).
That would reduce earnings to $292.6 million.
State taxes may also be withheld or paid. If you don’t live in a state where there is no income tax or lottery winnings are taxed, these rates can be more than 10%, depending on where you bought your ticket and where you live.
However, even after a large tax bill, it would still be more than most people see in their lifetime. It is recommended that jackpot winners gather a team of professionals to help them navigate the claims process, including an attorney, a financial advisor, and a tax advisor.
The odds of a single ticket matching six numbers drawn in Mega Millions are about 1 in 302 million. For Powerball — whose jackpot is estimated at $130 million for Monday night’s drawing — it’s 1 in 292 million.
The Mega Millions jackpot is $790 million. If it wins, here’s the tax bill
Source link The Mega Millions jackpot is $790 million. If it wins, here’s the tax bill