Over $74.5 million “comes from the top”
Before winners see a penny of the multi-million dollar grand prize, there is a mandatory 24% federal withholding that goes to the IRS. The withholding applies to winnings of more than $5,000.
If you choose the $310.6 million cash option, the 24% withholding automatically reduces your withholding by more than $74.5 million. However, many taxpayers wrongly assume they’re on the hook after 24%, Chichester said.
“24% comes from the top,” he said, “but you’re still responsible for the other 13% at some point.”
Here’s why: Lottery winnings in the millions will propel you into the highest federal income tax bracket. For 2023, the 37% rate applies to taxable income of $578,126 or more for single filers and $693,751 or higher for married couples filing together. (You calculate taxable income by subtracting the greater of the standard or itemized deductions from your adjusted gross income.)
Of course, the 37% does not apply to all of your taxable income. For 2023, individual candidates will pay $174,238.25 plus 37% of the amount over $578,125. For married couples filing jointly, the total outstanding debt is $186,601.50 plus 37% of the amount over $693,750.
The remaining tax bill depends on several factors, but it could easily account for millions more.
You may also owe state taxes, depending on where you live and where you purchased your ticket. While some states do not tax income or do not tax lottery winnings, others have the highest state income tax brackets above 10%.
Arsenal are not the only chance to win big this weekend. Meanwhile, the jackpot for Friday night’s Mega Millions draw is $450 million. The chance of winning the jackpot in this game is approximately 1 in 302 million.
