Whoever is holding the winning ticket for the $432 million Mega Millions jackpot is about to discover what a huge tax bill really looks like.
A single Mega Millions ticket sold in New York City matched all six numbers in Tuesday night’s drawing to nab the top prize. While the windfall will be a life-changing bonanza, the advertised amount isn’t what the winner will actually end up with.
Winners get to choose between taking their prize as either a lump sum or an annuity paid over 30 years. For the $432 million Mega Millions jackpot, the cash option — which most people go with — is $315 million.
However, before it reaches the winner, 24% — $75.6 million — will be withheld for federal taxes. More would likely be due at tax time (April 2022 for 2021 wins), due to the current top marginal income tax rate of 37%. (Be aware that there is an effort in Congress to increase that to 39.6%).
Then there are state and local taxes. In New York state, the withholding rate is 8.82% — which would mean another $27.8 million shaved off the top. Additionally, New York City grabs 3.876% — $12.2 million — for its own coffers.
After the tax withholdings — an aggregate $115.6 million — the winner would be left with about $199.4 million, not counting any additional amount due at tax time.
Despite the sizeable share that goes to taxes, the windfall is more than most people see in a lifetime. This makes it important to get professional guidance before heading to lottery headquarters. In New York, you get a year to claim your prize.
Generally speaking, the first call should be to an attorney experienced in assisting lottery winners, experts say. Other professionals also should be brought in to help, including a tax advisor and a financial advisor.
Be aware that although New York does not allow full anonymity when big lottery prizes are won, the winner may be able to set up a trust or limited liability company to claim the windfall, thereby keeping their name out of the public eye.
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The winner also should make a copy of their ticket and store the original in a safe place (i.e., a lockbox or a bank safe deposit box). Additionally, it’s worth sharing the news with as few people as possible, experts say.
Meanwhile, the Powerball jackpot is approaching the half-billion-dollar mark. For Wednesday night’s drawing, the top prize is an estimated $490 million ($355.1 million cash). The Mega Millions jackpot has reset to $20 million ($14.5 million) for the next drawing, set for Friday night.
Your chance of hitting either game’s jackpot with a single ticket is miniscule. For Mega Millions, it’s 1 in 302 million and for Powerball, 1 in 292 million.