Recently, a single ticket sold in New Jersey made someone an instant billionaire by winning the $1.128 billion Mega Millions jackpot. However, before the winner starts counting their money, tax experts caution that a significant portion of the prize will be taken by the taxman. The final jackpot amount dropped slightly from the estimated $1.13 billion due to actual ticket sales, but the lucky winner still faces a massive payday.
It is common knowledge that winning a large sum of money comes with tax implications. In this case, the winner will have to choose between two payout options – an annuitized prize totaling $1.128 billion or a lump-sum cash payment of $536.6 million. Regardless of the option chosen, experts warn that almost half of the prize will be lost to taxes.
Albert Campo, a certified public accountant, explained that New Jersey taxes prizes over $10,000, which means the winner will owe millions to the state in addition to their federal tax bill. Some states like California, Florida, and Texas do not impose income taxes on lottery winnings, but unfortunately, New Jersey is not one of them.
Before the winner can even get their hands on the money, a mandatory 24% federal withholding tax will be deducted by the IRS. In the case of choosing the lump-sum cash payment, this withholding will reduce the prize by approximately $129 million. Additionally, the jackpot will push the winner into the highest federal tax bracket of 37% for 2024, meaning they could potentially owe an additional 13% in federal taxes, amounting to around $70 million.
New Jersey automatically withholds 8% for payouts exceeding $500,000, which translates to roughly $43 million off the top. While this may cover a significant portion, it is important to note that New Jersey’s top tax bracket is 10.75%. These tax implications can add up quickly, leaving the winner with a substantially reduced prize after all is said and done.
It is easy for lottery winners to get caught up in the excitement of their newfound wealth without considering the tax consequences. Andrew Stoltmann, a lawyer who has represented lottery winners, emphasized that many winners do not think about taxes until they see a substantial portion of their prize going to the government. The taxes owed on lottery winnings can be a rude awakening for those who fail to plan accordingly.
While the Mega Millions jackpot winner faces significant tax implications, the Powerball jackpot is another opportunity for someone to strike it rich. The current estimated jackpot stands at $865 million, with odds of winning at approximately 1 in 292 million. Like its counterpart, the Powerball jackpot comes with its own set of tax implications that winners must navigate.
Winning a massive lottery jackpot may seem like a dream come true, but the tax implications can quickly turn that dream into a nightmare. It is crucial for winners to understand the tax consequences of their newfound wealth and plan accordingly to avoid any financial surprises down the road.