Personal Finance

That $367 million Mega Millions jackpot comes with big tax bite

Drew Angerer | Getty Images News | Getty Images

Eyeballing that Mega Millions jackpot? Good ol’ Uncle Sam is, too.

After more than two months of twice-weekly drawings with no one matching all six numbers, the top prize has climbed to $367 million for Tuesday night’s drawing. The last jackpot won was on March 12, for $50 million.

Of course, the advertised amount isn’t what winners end up with.

Whether they take the prize as an annuity spread out over three decades or as an immediate, reduced lump sum, 24% is withheld for federal taxes. However, the top marginal tax rate of 37% means owing a lot more to the IRS at tax time. State taxes typically are due, as well.

Largest U.S. lottery jackpots

Rank Amount Date won Game Winner locations
1$1.586 billionJan. 13 2016PowerballCA-FL-TN
2$1.54 billionOct. 23 2018Mega MillionsSC
3$768.4 millionMarch 27 2019PowerballWI
3$758.7 millionAug. 23 2017PowerballMA
5$687.8 millionOct. 27 2018PowerballIA-NY
6$656 millionMar. 30 2012Mega MillionsKS-IL-MD
7$648 millionDec. 17 2013Mega MillionsCA-GA
8$590.5 millionMay 13 2013PowerballFL
9$587.5 millionNov. 28 2012PowerballAZ-MO
10$564.1 millionFeb. 11 2015PowerballNC-PR-TX

“If you win, just realize how big the tax bill can be and make sure you’re ready to handle it,” said certified financial planner Dan Routh, a wealth advisor at Exencial Wealth Advisors in Oklahoma City.

For Tuesday night’s Mega Millions drawing, the cash option — which most winners go with — is $228 million. The 24% federal withholding would reduce that amount by $54.7 million.

Assuming you had no reduction to your taxable income — such as large charitable contributions — another 13%, or $29.6 million, would be due to the IRS. That would be $84.3 million in all going to Uncle Sam.

This means that after federal taxes, you’d be left with $143.7 million.

Then there are state taxes, which range from zero to more than 8% depending on where the ticket was purchased and where the winner lives.

In other words, you could end up paying more than 45% in taxes.

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If you’re lucky enough to win a life-changing amount in the lottery — and your chance of winning the Mega Millions jackpot is 1 in about 302.1 million — experts recommend turning to a team of professionals who are experienced in handling large windfalls. That should include an attorney, a financial advisor and a tax advisor.

“Everyone who buys a ticket dreams of winning the huge jackpot, but nobody actually thinks they will win, or has a plan in place if they do,” said Jason Kurland, a partner at Rivkin Radler, a law firm in Uniondale, New York.

Meanwhile, the Powerball jackpot is an estimated $288 million for Wednesday night’s drawing.

The last time there was a top-prize winner in that game was on March 28, when a Wisconsin man nabbed a $768.4 million jackpot. Manual Franco, who claimed his haul in late April, chose the lump sum cash option of $477 million. After federal and state tax withholdings, he received $326 million.

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