Mega Millions Jackpot Soars to $1.025 Billion.
When you win the big jackpot, you have two different payment options: Lump Sum or Annuity Payout.
Lump Sum: Lottery winners who consider themselves savvy investors typically pick the lump sum option so they can beat the long term market terms by immediately investing the money in high yield financial options including real estate, commodities, precious metals, stocks, or bonds. Taking the lump sum payment also means they can make extravagant purchases and pay off large amounts of debt. The downside of an immediate influx of cash is the significantly less than the amount won in the lottery.
Annuity Payout: One reason to look hard at a long term structured settlement is the potential tax benefits. Depending on the amount of the winnings, individuals who choose annuity payments over the lump-sum payment can fall into a lower tax bracket. They will also receive a larger payment over the long run. The major downfall to an annuity payout is having unexpected financial emergencies come up that periodic payments might fail to meet.
What payment option would you select if you won the Mega Millions?
Cash Payout for the Mega Millions on Friday, July 29th if you live in Ohio.
Lump Sum Cash Amount: $602,500,000
-24% Federal Tax……….- $144,600,000
-Additional federal taxes due (37% final rate)…….. – $78,287,955
– 4.797% Ohio State Tax…….- $28,901,925
***Total Cash Payout= $350,710,120 (after taxes)
Annuity Payout for the Mega Millions on Friday, July 29th if you live in Ohio.
Annuity Payout (30 average payments of $34,166,667): $1,025,000,000
-24% Federal Tax……….- 246,000,000
-Additional federal taxes due (37% final rate)…….. – $132,138,660
– 4.797% Ohio State Tax…….- $49,169,250
***Total Annuity Payout= $597,692,100 (after taxes)
About Citizen Advisory Group
Citizen Advisory Group is a comprehensive financial services firm that helps Northwest Ohio and Southeast Michigan’s soon to be retired and retired residents effectively plan for and prepare for life’s greatest journey.
At Citizen Advisory Group, we are committed to providing custom service built around you. As your needs change, our disciplined approach to planning ensures that your financial strategies evolve with you. A Citizen Advisory Group financial advisor has the experience to help guide you through your financial future, regardless of your stage in life. Our services strive to help preserve and possibly increase your wealth with an exceptional level of personalized service and attention.
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The federal taxes approximated above are based on the 2021 marginal tax tables published by the IRS. The calculation is a marginal tax calculation, which does provide a good representation of the federal tax burden, but it is a “worst case scenario” because of the lack of deductions (see next note).
The tax amounts listed above do not include any standard or itemized deducations that would result in a lower tax burden. Since every individual winner’s situation differs, and every winner chooses to dispense their winnings in a different manner, there is no way for us to determine what your exact final tax burden will be. For example, someone who gives away a large amount to charities or opens certain types of investments would have a vastly different tax burden than someone who buys new cars and houses.
The state tax rates withheld by the lottery, as well as the final state income tax rates, are amounts that USA Mega found in publicly-available sources. It is possible that niche tax law in a state would add or subtract from the state tax burden faced by a winner, but that is beyond the scope of this analysis.
Although federal taxes are calculated according to marginal tax rates (graduated-rate brackets), all state taxes are shown as a fixed-rate calculation. In states that calculate tax with graduated rates this results in our chart showing a slightly higher tax burden than what would actually be due.
Selecting a Federal Filing Status above only makes changes to the federal taxes shown. Because all state taxes are shown as a fixed-rate calculation (see previous note), changing the filing status does not affect the state taxes in this chart. If your state uses graduated rates your actual state tax burden will change based on your filing status.
The jurisdiction in which you live may impose additional local taxes, beyond those listed here. Please verify all information with your local government tax agency.
State lotteries typically deduct other amounts from prize payments, such as delinquent child support payments, back taxes owed, outstanding student loans, and other government agency responsibilities.
If you are not a U.S. resident, you will typically have a flat 30% federal withholding, and state taxes may differ from what is listed above. Consult with your local government tax authority for more information if you are not a U.S. resident. The 30% flat withholding is a dictate by the Internal Revenue Service, in conjunction with the Federal Government, not something created by the state lottery. Therefore, questions about the purpose of the withholding should be directed to the IRS (1-800-424-1040).
The states modify their tax withholding rates from time to time, and this chart is accurate as to our latest information we could track down. It is possible that the tax rate provided above is outdated, although we try not to let that happen. If you are aware of a percentage being out of date, please contact us to let us know, and we will update it.
If you are viewing the Jackpot Analysis for a past drawing date, keep in mind you are viewing the application of the current tax rates against past jackpot amounts. If the tax rates have changed since that drawing date, the report is not an accurate snapshot of the taxes that would have been withheld on that date in history. Instead, you are looking at the taxes that would be withheld if the jackpot were won today.
If you win the jackpot, consult a good accountant and tax attorney for ways to minimize your tax liability — before you claim the prize.