Mega Millions Taxation
It doesn’t matter if you’ve just woken up from a dream of hitting the Mega Millions jackpot or have really managed to score a big win. Uncle Sam is still someone you have to deal with. Winning is the first step and paying your taxes is the next step. It all depends on how you want to go about it. For starters, you have the cash option (receiving payment in a lump sum) or annuity (have your winnings drawn out over several years). Read on for the full breakdown of the Mega Millions taxation.
Cash option vs annuity
Let’s say you won the Mega Millions jackpot worth $400 million. If you choose to take your winnings as a lump sum you will receive around $216 million. On the other hand, if you opt for an annuity and take incremental payments spread over 30 years, you will get ultimately receive a figure close to $400 million. Taking your money at once, puts you in the highest tax bracket while you get the benefit of low tax brackets if you take some money each year. Each dollar made after reaching $450,000 gets taxed at around 39.6 percent, the highest tax bracket. That means you end up paying almost 40 percent if you choose to take the lump sum. With annual payments you get to pay much less in taxes on $450,000 of every year’s income. The equation is simple.
Withholding tax a must
Lottery winnings of $600.01 attract Federal Withholding tax. You will need to fill in a W-2G form for any winnings over $600 and up to an including $5,000 and file it along with your federal income tax form. The state Department of Revenue will deduct the 25 percent federal withholding before you receive your Mega Millions winnings check. If you choose an annuity, they will deduct the tax from each winnings check. You will receive a W-2G form with each check that must be submitted with your 1040 form as proof of payment of the 25 percent federal withholding tax.
Depending on your state’s policies, you will need to make additional withholdings for taxes, apart from federal tax. Most states deduct money you owe to the states, which includes back taxes and loan payments, to name a few. Make sure to consult your state’s Department of Revenue for more information on state tax requirements for lottery winners.
Don’t tax yourself too much
Has that been taxing enough? There’s no reason to be hassled about taxes. The process is simple as long as you have the right approach. All you need is to sit back, relax and enjoy your bounty knowing you’ve done your duty by paying Uncle Sam his dues.