Someone in the US will receive a life-changing sum of money in the near future. The exact amount may depend on which state they are in.
Ahead of its next draw on Friday, the Mega Millions Lottery Jackpot has passed $1 billion mark. The prize, which has been growing for three months, represents only the fourth billion-dollar lottery jackpot in US history. And Some are lucky Those who manage to hit such a big jackpot, that big lottery win always follows A big tax bill.
Lottery winnings come with a mandatory 24% federal tax withholding. If they win the current Mega Millions jackpot and choose its $602.5 million cash option — as opposed to receiving cash in an annuity over 30 years — they’ll automatically receive a federal tax bill of about $144.6 million.
Since the top federal tax rate is 37%, the winner will owe more when it comes time to pay their annual taxes.
But that’s not all. Tax laws regarding income and lottery winnings vary from state to state, meaning your overall tax bill on your big lottery jackpot could be even higher depending on where you buy your winning ticket.
In these 10 states, you don’t have to pay any state taxes on lottery winnings:
- New Hampshire
- South Dakota
In most of the US, lottery winnings are taxed the same as regular income — but not in California and Delaware. Lottery winnings are not subject to those two states California’s income tax rate is 12.3% Or Delaware’s rate is 6.6%.
Eight other states on the list have no income tax laws. If you live there, your lottery winnings are considered income, but are not subject to additional taxes beyond the federal rate. Alaska also has no income tax laws, but is one of five US states with no lottery sales, along with Alabama, Mississippi, Nevada and Utah.
In any other US state, you would 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 imposes an 8.82% tax rate on lottery winnings, and so do you Pay an additional 3.8% in New York City.
If you purchased your winning ticket outside of your home state, you may be subject to it Income tax rates You must list your winnings as taxable income in the state where you bought the ticket — and in the state where you live.
If your home state has a higher income tax rate than the state where you purchased your winning ticket, your overall state tax bill will reflect the higher of those two rates. That is why Experts usually advise Against buying lottery tickets in states with higher income tax rates than your home state.
Financial experts are also convinced If you ever win a big lottery jackpot, you should rely on expert advice. That means hiring a team of advisors that includes a lawyer and financial and tax advisors.
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