Mega Millions winner will owe more tax than what's withheld

9 months ago 195

America's elite billionaires club last week welcomed a new member. The person who has the sole winning ticket, purchased at a Publix grocery store in Neptune Beach, Florida, can claim the $1.58 billion Mega Millions jackpot.

The Aug. 8 jackpot was the largest Mega Millions jackpot awarded, according to the national lottery.

The winner, who has yet to come forward, has the option of taking the nearly $1.6 billion spread out over 30 years. Or the winner can slide into the millionaires' club by getting a single cash payment of $783.3 million.

One vs. 30 payouts: Most people opt for the one-time payout. I don't blame them. It's what I would do.

We never know when, keeping the numeric theme going, our ultimate numbers will come up, so enjoy it while you can.

And while the cash payout is less, you have control over the money. You can blow it on homes, cars, vacations, whatever.

Or you can invest it, letting it continue to earn some additional, and still taxable, money over the years.

More taxes ahead: One thing you cannot avoid, regardless of how you collect your new lottery millions is taxes. Uncle Sam and most state departments of revenue (although in this case, not Florida, which has no personal income tax) will get their cut.

The Internal Revenue Service's partial portion is immediate with the cash option.

Most types of gambling winnings are subject to mandatory federal withholding taxes. When it comes to lotteries, that's 24 percent off the top.

My trusty calculator tells me that's $187,992,000.

But that is not the end of the new, but slightly less rich, Mega Millions winner's federal tax bill.

13 percent more due IRS: The new millionaire is now in the top U.S. income tax bracket. That's a 37 percent tax rate.

For the 2023 tax year, that top tax rate applies to earnings, which include gambling winnings, of $578,126 or more for single filers; $578,101 or more for head of household taxpayers; $693,751 for married couples filing jointly; or $346,876 for wedded duos who file separate tax returns.

And since he/she/they will have indirectly handed over just under $1.8 million to the U.S. Treasury, the winner will have to come up with the remaining 13 percent tax due, either via the upcoming Sept. 15 estimated tax payment deadline or at regular 2023 tax return filing time next year.

That 13 percent needed to meet the 37 percent top rate of the highest tax bracket comes to, again referring to my calculator, a dollar figure of $101,829,000.

The millions of dollars in payouts and taxes connected with the Mega Millions payout are huge, but I'm going with the 13 percent remaining amount of tax due as this weekend's By the Numbers figure.

Tax moves for new millionaires: Unfortunately, a lot of winners of big lottery payouts mistakenly think that their tax obligations are satisfied by the withholding from their cash payout.

A lot them consequently don't set aside the cash to pay the additional tax due. Even if they still have enough money to pay taxes when filing time rolls around, they are at the very least unpleasantly surprised.

I hope one of the reasons that the newest lottery winner has yet to collect his/her/their millions is because they're learning this and other tax implications by talking with a tax advisor.

That move is one of the pieces of advice in my post 6 tax and financial tips for new lottery millionaires.

If you're the Florida ticket owner, congratulations. If you're like me, holding a worthless lottery slip, go ahead and bookmark this page, and other ol' blog lottery/gambling posts listed below.

The Mega Millions and Powerball games are again growing, and you never know.

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