Winning the $1.128 billion Mega Millions jackpot is a dream come true for many, but the excitement might be short-lived once the taxman comes knocking. Experts warn that the winner will face significant tax implications, regardless of whether they choose the annuitized prize or the lump-sum payout.
Before the lucky winner receives a penny of their jackpot, they will have to pay a mandatory 24% federal withholding to the IRS. This upfront withholding automatically reduces the $536.6 million cash option by about $129 million. Furthermore, the winner will be pushed into the top federal tax bracket of 37% for 2024, potentially resulting in an additional 13% federal tax bill, amounting to around $70 million.
In addition to federal taxes, the Mega Millions winner in New Jersey will owe millions to the state, including a mandatory withholding. New Jersey automatically withholds 8% for prizes over $500,000, which will cost the winner another $43 million upfront. While the state withholding covers a significant portion, New Jersey’s top tax bracket is 10.75%, further increasing the winner’s tax liability.
Experts like Albert Campo, a certified public accountant, emphasize that winners often overlook the tax implications until they see a substantial portion of their prize going to the government. Campo warns that regardless of the payout option, the winner stands to lose almost half of the jackpot to taxes, leading to a significantly reduced take-home amount.
While the Mega Millions jackpot garners significant attention, it’s not the only way to win big. The Powerball jackpot has soared to an estimated $865 million, offering another chance for a life-changing windfall. However, the odds of winning the grand prize for either game are incredibly slim, with a roughly 1 in 292 million chance.
Winning the Mega Millions jackpot may seem like a life-changing event, but the reality of hefty tax implications can quickly diminish the excitement. With mandatory federal and state tax withholdings, the winner could potentially lose nearly half of the prize to taxes before even receiving a dime. It’s essential for lottery winners to carefully consider the tax consequences and plan accordingly to avoid any financial surprises down the road.
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