Lottery fever grips the nation
FBN's Kristina Partsinevelos on the excitement over the big Mega Millions and Powerball jackpots.
On Tuesday night, one lucky person in South Carolina won the record $1.6 billion Mega Millions jackpot.
The numbers selected Tuesday were 5, 28, 62, 65 and 70, and the Mega Ball was 5. The prize was for $1.537 million – and the odds of winning were about 1 in 303 million.
But the odds are 1 in 1 that taxes will chew up a large part of the prize.
The winner has the option of taking the prize in the form of an annuity payment – which would be valued at about $1.537 billion paid out over 29 years – or in the form of a lump sum valued at an estimated $877.8 million, according to K. Eli Akhavan, partner and chair of the Private Client and Wealth Preservation Group at CKR Law.
If the cash option is taken, the jackpot is subject to federal withholding, which is an immediate 24 percent before the winner ever receives a cent.
That will immediately bring the total down by $211.7 million, Akhavan estimates.
The IRS will also likely tax the winnings at the highest federal income bracket, which now sits at 37 percent for individuals with incomes in excess of $500,000. You would owe any difference left over between that tax rate (37 percent) and the federal withholding rate (24 percent) when you file your tax return at the end of the year, Akhavan said, which deducts $114.1 million.
The winnings will also be subject to state tax rates, which vary between 0 and 8.82 percent, depending on the state of residence (7 percent in South Carolina). That reduces the winnings by about $61.4 million.
After taxes are considered, Akhavan – who is not an expert in South Carolina state taxation – estimates the winner would take home about $490.6 million, if he or she opted for the cash option.
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