Here’s How Much the Mega Millions Winner Forfeits in Lottery Taxes

Updated:

Mega Million Taxes

One lucky player in New Jersey defied the odds to match all six numbers in the March 26, 2024, drawing and won the estimated $1.13 billion Mega Millions jackpot: cash option of $537.5 million. It’s one of the largest lottery jackpots ever won, but the winner won’t really take home all that money—they’ll wind up paying a big chunk of change in Mega Millions taxes.

First, the IRS skims 24% off the top. Then, the winner will pay 37% in federal taxes on what remains, leaving them with roughly $338.6 million. There are also state taxes on lottery winnings for this winner to consider.

Overwhelmed by the math (and the thought of forking over that much cash)? We’ll walk you through how taxes on lottery winnings work below.

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Mega Millions Jackpot Winnings After Taxes

It’s highly unlikely that any of us will ever win the Mega Millions jackpot, but eventually, it’ll happen to someone. So inquiring minds want to know: How much will you actually take home?

First and foremost, Mega Millions taxes depend on how much you win. Winning the big jackpot is all but a guarantee that you’ll rake in enough cash to put you in the largest federal tax bracket. Winning a small amount, like a $500 or even $10,000 Megaplier prize could be a nice windfall—but still not enough to catapult you into the largest federal tax bracket.

Let’s see how that works:

Federal Taxes on Lottery Winnings

When you win any lottery prize of $5,000 or more, you’ll automatically pay 24% of the winnings in federal withholding tax. You’ll never even see that money. In a way, it’s like a paycheck from your employer—taxes are withheld before the money ever hits your bank account.

But in the case of the Mega Millions jackpot, winners receive a large enough payout that they’re automatically shifted into the highest federal tax bracket: 37%.

For 2024, single tax filers who have an income greater than $609,350 (or married couples making more than $731,200) are taxed at 37%. Single filers will pay $183,647.25 on the first $609,350 of lottery winnings, and then 37% on the rest.

State Taxes on Lottery Winnings

Unfortunately, Uncle Sam isn’t the only one who’s eying your lottery winnings. Most state governments also want to get their hands on what you won.

Forty-two states and the District of Columbia levy taxes on lottery winnings, ranging from 2.9% (North Dakota) to 11% (Hawaii). Interestingly, Hawaii is one of five states where you can’t purchase lottery tickets, but the state government can still dip into your prize if you buy a ticket in another state and win. (The other four states where you can’t buy lottery tickets include Alabama, Alaska, Nevada, and Utah).

The table below shows the five states with the highest lottery tax rate.

StateLottery Tax Rate
HawaiiUp to 11%
New YorkUp to 10.9%
New JerseyUp to 10.75%
OregonUp to 9.9%
MinnesotaUp to 9.85%
States With the Highest Tax Rates on Lottery Winnings

In some cases, it doesn’t end with state taxes. Cities, like some in New York state, can also levy taxes on income, including lottery winnings.

States That Don’t Tax Lottery Winnings

Residents of eight states can consider themselves extra lucky if they win the lottery. As of 2024, these eight states don’t tax lottery winnings at all:

  • California
  • Florida
  • New Hampshire
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

California forgoing a state lottery tax is the most surprising here, as California state taxes tend to be higher than average in nearly every other category.

Read more: The Most Tax-Friendly States for Retirees

Taxes on the Most Recent Mega Millions Jackpot

You have a roughly 1 in 302.6 million chance of winning the Mega Millions jackpot, which makes what happened in March 2024 quite newsworthy. So how much did the winner take home after their Mega Millions taxes? Let’s take a look:

  • Federal taxes: The IRS will claim 24% of their winnings ($129,000,000) before they ever see a dime; the winner will pay the rest of what they owe in federal taxes when they file. Assuming this winner is single, makes no other income in 2024, and has no deductions or credits, the total amount they’ll owe on the winnings is slightly over $198.8 million: $186,601.50 on the first $609,350 of their winnings and then roughly $198.6 million (37% of the rest).
  • State taxes: New Jersey levies a 6.625% income tax, which equates to another $33.5 million due on tax day.

When all is said and done, this winner will take home an estimates $305 million.

What About Powerball Winnings After Taxes?

Mega Millions winners aren’t the only ones staring down a large tax bill. Powerball taxes work just the same.

The most recent winner claimed a $1.08 billion prize ($558.1 million lump-sum payout) in July 2023. Though federal taxes claimed $206.5 million, the winner was fortunate enough to live in California, meaning there were no state taxes on the winnings. In total, the lump-sum amount after taxes comes out to roughly $351.6 million.

Lump-Sum Payout vs. Annuity Payouts on the Mega Millions

If you win the Mega Millions or Powerball jackpot, you can choose a one-time lump-sum payment (usually about 60% of the advertised jackpot) or annuities (one upfront payment and then 29 annual payments, increasing 5% each year and amounting to the full advertised jackpot at the end).

So how do lottery taxes differ for the two choices, and which should you take?

Lump Sum

If you win a massive jackpot and take the lump sum, chances are good you’ll land in the highest federal tax bracket of 37%. A portion of that is withheld immediately (24%), and you’ll pay the rest when you file your taxes in April. Depending on where you live, you may also owe state and local taxes.

After that, your tax burden is largely done. Like any other money in a bank account or tied up in investments, you might pay taxes on interest earned or dividends paid, but otherwise, your major lottery tax implications are out of the way.

Annuity

Many people choose the annuity route because they’ll (eventually) get the full payout. How much you pay in taxes depends on how much you get each year and what the federal and state tax brackets are that year. For instance, splitting a “smaller” jackpot of $5 million over 30 years would actually likely land you in a lower tax bracket each year.

However, you also stand the chance of the IRS changing its tax brackets. The current max tax rate of 37% is set to expire in 2025, when it will go back up to 39.6% if Congress doesn’t take action. By taking annuities, you risk paying a higher percentage down the road.

Annuities also mean your tax return will be a headache for the next 30 years. Though, to be fair, if you win a multimillion-dollar jackpot and invest your money wisely, you’ll probably always have complicated taxes that require proper help from a trusted, fiduciary financial advisor.

Which Should You Take?

Both the lump-sum and annuity payouts have their pros and cons. If you take the lump-sum, you’ll technically get less of the total prize money, but financial experts argue that you’ll actually earn more over the next 30 years if you invest that money wisely.

Of course, many lottery winners go on a spending spree and run out of cash within a matter of years. Annuities, which spread payments out over 30 years, can protect lottery winners from making that mistake.

Ultimately, it’s up to you to decide if you can trust yourself to invest the lump sum strategically enough to make it more worthwhile than annual payments for the next three decades. But hey, you won the lottery: You’ll probably be OK either way.

FAQs About Taxes on Lottery Winnings

How long does it take to get paid if you win the Mega Millions?

It can take about three weeks to get paid after winning the Mega Millions. Before you get paid, you’ll need to claim your prize in person. It’s a good idea to hire a financial advisor who can help you decide how you’ll claim winnings (lump sum vs. annuities) and how you’ll protect them once you get them.

How many numbers do I need to match to win Mega Millions?

To win the Mega Millions jackpot, you need to match all six numbers in a drawing (five white balls and the gold Mega Ball). But even if you don’t get all six balls, you could still win. Here’s a breakdown of how Mega Millions winnings work:

  • 5 white balls and 1 gold Mega Ball: Jackpot
  • 5 white balls: $1 million
  • 4 white balls and 1 gold Mega Ball: $10,000
  • 4 white balls: $500
  • 3 white balls and 1 gold Mega Ball: $200
  • 3 white balls: $10
  • 2 white balls and 1 gold Mega Ball: $10
  • 1 white ball and 1 gold Mega Ball: $4
  • 1 gold Mega Ball: $2

What are the odds of winning the Mega Millions lottery?

You have a 1 in 302,575,350 chance of winning the Mega Millions jackpot. While that’s highly unlikely, it’s not impossible; there’s an average of 0.2 winners every draw (or one winner every 500 draws). You have a better chance of winning some of the other Mega Millions prizes. For instance, there’s a 1 in 12.6 million chance of winning $1 million, a 1 in 38,792 chance of winning $500, and a 1 in 37 chance of winning $2.

Bottom Line

Winning the lottery brings unfathomable life changes. That newfound wealth can actually be overwhelming for a lot of winners. Work with a trusted financial advisor to make the right decisions—about how you’ll receive your cash, how you’ll reduce your tax burden, and how you’ll smartly invest your winnings to set you and your loved ones up for success now and in the future.

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