You may face long odds of hitting the Mega Millions jackpot — now worth $1.35 billion — but the taxman is always guaranteed a slice when there’s a winner.
The jackpot jumped again after no ticket matched all six numbers drawn Tuesday night to land the grand prize. If won in the next drawing — set for Friday night — it would mark the second-largest Mega Millions jackpot ever and the fourth-largest lottery prize in history.
With the odds stacked against a single ticket winning the motherlode — 1 in 302.6 million — the amount has been growing since Oct. 14 when the jackpot was reset to $20 million after two tickets sold in Florida and California split a $502 million grand prize.
More from Personal Finance:
Americans lean more on credit cards as expenses stay high
3 money moves you should make at the start of the year
Where to keep your cash amid inflation, rising interest rates
Of course, the advertised amount is always what you’d get (pretax) if you were to claim your windfall as an annuity spread over three decades and taxed each year as you receive the income.
Most winners, however, choose the lump sum cash option, which for this jackpot is $707.9 million.
That amount would be reduced by a mandatory 24% federal withholding, or $169.9 million, which would lower your winnings to $538 million. Yet because the top marginal income tax rate of 37% applies to income above $578,125 for individual tax filers and $693,750 for married couples, you could count on owing more to the IRS at tax time.
Many jackpot winners tap their philanthropic side and give some of their windfall to charitable causes. Those donations are tax deductible, which would reduce your tax bill.
However, if you were to face the top rate of 37% on the full $707.9 million cash option, $261.9 million in all would go to the IRS, reducing your haul to $446 million.
State taxes — and sometimes local taxes — would also likely be withheld or due, depending on where you purchased the ticket and where you live. Those levies can range from zero to more than 10%.
Nevertheless, even if fully half of your winnings went to taxes, you’d still end up with roughly $354 million, which is far more than most people see in a lifetime.
Meanwhile, Powerball’s jackpot is $360 million ($188.7 million cash) for Wednesday night’s drawing. The chance of hitting the jackpot in that game is slightly better than with Mega Millions: 1 in 292 million.