Winning the lottery is a dream come true for many, but the hefty tax bill that comes with it can quickly dampen that excitement. Recently, a lucky individual in New Jersey claimed the $1.128 billion Mega Millions jackpot, making them an instant billionaire. However, experts warn that the taxman will take a sizable share of the winnings.
The winner has the option to choose between an annuitized prize of $1.128 billion or a lump-sum payout of $536.6 million cash. However, regardless of the option chosen, nearly half of the winnings will be lost to taxes.
Albert Campo, a certified public accountant, explains that New Jersey taxes prizes over $10,000, and the winner will owe millions to the state in addition to their federal tax bill. On the federal level, the winner will pay a 24% mandatory upfront withholding to the IRS, reducing the cash option by about $129 million. Additionally, the winner will fall into the top federal tax bracket of 37% for 2024, potentially owing another 13% in federal taxes, or about $70 million.
In total, the winner could owe millions in federal and state taxes before they see any of their jackpot money. While New Jersey automatically withholds 8% for payouts over $500,000, the state’s top tax bracket is 10.75%.
It’s important for lottery winners to consider the tax implications of their winnings before celebrating too soon. Andrew Stoltmann, a lawyer who has represented several lottery winners, notes that many winners don’t think about taxes until they see a significant portion of their winnings going to the government.
The Mega Millions jackpot is not the only opportunity to win big, as the Powerball jackpot has also soared to an estimated $865 million. With odds of roughly 1 in 292 million, winning big in the lottery requires not only luck but also careful consideration of the tax consequences.
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