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Experts say there is officially one winner of the $1.128 billion Mega Millions jackpot, and the taxman will get the lion’s share.
A ticket sold in New Jersey has won the fifth-biggest prize in the game after matching all six numbers drawn Tuesday night, Mega Millions announced Wednesday. Based on actual ticket sales, the final jackpot decreased from an estimated $1.13 billion to $1.128 billion.
The lucky winner will choose from two options: an annuitized prize worth $1.128 billion or a lump sum cash payment of $536.6 million.
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Albert Campo, a certified public accountant and president of AJC Accounting Services in Manalapan, N.J., said regardless of payment option, “you’re losing almost half of it” in taxes.
With New Jersey taxes on prizes exceeding $10,000, winners will owe millions of dollars to the state in addition to federal taxes, including mandatory withholding, he said.
Eight states, including California, Florida, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, do not impose income taxes on lottery winnings.
How much tax should the winner pay?
Before seeing a penny of the jackpot, winners pay a mandatory 24% upfront federal withholding to the IRS.
If you choose the $536.6 million cash option, the 24% withholding automatically reduces your award by approximately $129 million.
But the jackpot pushes winners into the top federal tax bracket, which will be 37% in 2024, Campo said. After the 24% withholding, the winner could be liable to pay an additional 13% in federal taxes, or about $70 million.
Of course, these are rough calculations. A winner’s federal tax bill also depends on their other income, credits, and deductions.
As for state taxes, New Jersey automatically withholds 8% on payments over $500,000, meaning winners will have to pay about $43 million more upfront. New Jersey’s top tax rate is 10.75%, although the state’s withholdings cover “a significant portion,” Campo said.
Andrew Stoltman, a Chicago-based attorney who represents several lottery winners, said that until the large distributions are paid to the IRS and state governments, “none of these winners will do their taxes. I don’t take it seriously.”
Mega Millions isn’t the only way to win big. If there was no big winner in Monday night’s drawing, the Powerball jackpot would have been an estimated $865 million. The odds of winning the grand prize in that game are approximately 1 in 292 million.
