taxes

Mega Millions Lottery Winner Will Get a Mega Tax Bill

The winning ticket for the $1.05 billion Mega Millions jackpot was bought in Michigan. After federal and state taxes are taken out, that amount will be much less.

Congratulations to the lucky winner who had the only ticket that matched all six numbers in Friday's Mega Millions lottery drawing. But there are two other entities who also won big – the federal government and the state of Michigan. That's because, between the two, they're going to get a big chunk of the $1.05 billion jackpot once the tax man claims his share.

$1.05 billion is the estimated value of annuity payments over 30 years. If the winner opts for an immediate lump-sum cash payment, which is what usually happens, the actual payout is only $776.6 million — before taxes.

Let's take a look at Uncle Sam's cut first. The top federal tax rate is 37% on 2021 income of more than $523,600 for individuals ($628,300 for married couples filing a joint return). That means last night's winner will pay about $287.3 million in federal income taxes, assuming he or she takes the lump sum. That knocks net winnings down to around $489.3 million. (The IRS will automatically take 24% of the winnings, and the winner will owe the rest at tax time).

Now it's Michigan's turn. (Since the winning ticket was purchased in Novi, Michigan, we're assuming the winner is a Michigan resident.) Michigan has a flat income tax rate of 4.25%. Applying that rate to the $776.6 million lump-sum payout results in a state tax bill of approximately $33 million. The state will collect that amount right off the top, since the Michigan Lottery withholds 4.25% before it hands over the prize money.

So, where does that leave our lucky winner? The combined federal and state tax will be about $320.3 million. When you take that out of the $776.6 million one-time payment, that leaves about $456.3 million in the winner's pocket. Not bad for a $2 investment!

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
The Current Plan for $1,400 Checks
Coronavirus and Your Money

The Current Plan for $1,400 Checks

Here's what you need to know about the stimulus check plan currently being considered in Congress for President Biden's COVID-relief package.
February 18, 2021
Want More Tax-Free Retirement Income? One Man’s Whole Life Decision
life insurance

Want More Tax-Free Retirement Income? One Man’s Whole Life Decision

Whole life insurance might not be something that’s on your retirement planning radar, but for this client, here’s how it served his need to control ta…
February 23, 2021

Recommended

33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
February 24, 2021
IRS Extends April 15 and Other Tax Deadlines for Texas Residents
Tax Breaks

IRS Extends April 15 and Other Tax Deadlines for Texas Residents

Following FEMA's recent disaster declaration for winter storms in the Lone Star State, taxpayers in all 254 Texas counties get more time to file and p…
February 22, 2021
What's the Recovery Rebate Credit?
Tax Breaks

What's the Recovery Rebate Credit?

If you didn't get a stimulus check, or you didn't get the full amount, you may be able to claim the recovery rebate credit on your 2020 tax return to …
February 17, 2021
The Biden Stimulus Plan: Push for a Higher Child Tax Credit Continues
Coronavirus and Your Money

The Biden Stimulus Plan: Push for a Higher Child Tax Credit Continues

The proposal currently on the table would increase the child tax credit to $3,000 or $3,600 per child and have the IRS pay 50% of it in advance.
February 16, 2021