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

Dying Careers You May Want to Steer Clear Of
careers

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021
7 Best Commodity Stocks to Play the Coming Boom
commodities

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021

Recommended

Tax Relief Available for California Wildfire Victims
Tax Breaks

Tax Relief Available for California Wildfire Victims

Following FEMA's recent disaster declaration, residents and businesses impacted by the California wildfires get more time to file and pay taxes.
September 24, 2021
Tax Relief Available for Hurricane Ida Victims
Tax Breaks

Tax Relief Available for Hurricane Ida Victims

People and businesses in Louisiana, Mississippi, New Jersey, New York and Pennsylvania impacted by Hurricane Ida get more time to file and pay certain…
September 24, 2021
Tax Changes and Key Amounts for the 2021 Tax Year
tax law

Tax Changes and Key Amounts for the 2021 Tax Year

Americans are facing a long list of tax changes for the 2021 tax year. Smart taxpayers will start planning for them now.
September 23, 2021
Child Tax Credit Payment Opt-Out Deadline is October 4
Tax Breaks

Child Tax Credit Payment Opt-Out Deadline is October 4

The next deadline for opting out of the monthly child credit payments will be here soon. Use the IRS's Child Tax Credit Update Portal to unenroll.
September 23, 2021