$1 Billion Mega Millions Jackpot

Someone in the United States is likely to receive a life-changing sum of money in the near future. The exact amount may depend on the state they are in.

Ahead of its next draw on Friday, the Mega Millions lottery jackpot has surpassed the $1 billion. The prize, which has been rising for three months, represents only the fourth billion-dollar lottery jackpot in US history. And for the lucky few who manage to land such a huge jackpot, that big lottery win is invariably closely followed by a hefty tax bill.

Lottery winnings are subject to a mandatory 24% federal withholding tax. If someone wins the current Mega Millions jackpot and chooses their cash option of $602.5 million – instead of receiving annuity payments over 30 years – they will automatically receive a federal tax bill of approximately $144. .6 million.

The winner will also owe more when paying their annual taxes, as the top federal marginal tax rate is 37%.

But that’s not all. Tax laws regarding income and lottery winnings vary from state to state, meaning the overall tax bill on your big lottery jackpot could be even higher depending on where you purchase the winning ticket. .

In these 10 states, you will not owe any state tax on lottery winnings:

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

In most of the United States, lottery winnings are taxed as normal income, but this is not the case in California and Delaware. Lottery winnings in these two states are not subject to California’s 12.3% income tax rate or Delaware’s 6.6% rate.

The other eight states on the list have no general income tax laws at all. If you live there, your lottery winnings will be considered income, but will not be taxed additionally beyond the federal rate. Alaska also has no general income tax laws, but it is one of five US states that have no lottery sales – along with Alabama, Mississippi, Nevada and Utah.

In any other US state, you will be subject to some sort of state tax bill. States with relatively low personal income tax rates that apply to lottery winnings include North Dakota (2.9%), Pennsylvania (3.07%) and Indiana (3.23%).

By comparison, New York levies an 8.82% tax rate on lottery winnings, and you might even pay an additional 3.8% in New York.

If you purchase your winning ticket outside of your home country, you will likely be subject to income tax rate of the state where you purchased the ticket – and you will also need to report your winnings as taxable income in the state where you reside.

If your home state has a higher income tax rate than the state where you purchased your winning ticket, your overall tax bill will likely reflect the higher of these two rates. This is why experts generally advise against buying lottery tickets in states with higher income tax rates than your home state.

Financial experts are also convinced that if you ever win a major lottery jackpot, you should rely on professional advice. This means hiring a team of advisers, possibly including a lawyer and financial and tax advisers.

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