Lottery Tax Secrets: How Much of a $59 Million Jackpot Do You Really Keep?
Federal Taxes – The U.S. government takes a hefty cut. Federal tax rates on lottery winnings can reach up to 37% for amounts over $578,000, meaning you could lose about $21.8 million in federal taxes alone.
State Taxes – Many states impose their own income taxes on lottery winnings, ranging from 0% to 8%. For example, California doesn't tax lottery winnings, while New York may tax it as high as 8.82%, potentially costing you an additional $5.2 million.
Lump Sum vs. Annuity – Winners can choose between a lump sum payout (typically about 60% of the advertised jackpot) or an annuity, paid out over several years.
Local Taxes – Some local jurisdictions impose additional taxes, especially in major cities like New York City or Chicago, where local taxes can add an extra 1.5% to 3%.
Gift and Inheritance Taxes – If you share your winnings with others, you may face additional taxes like gift tax, depending on how much you give. Gift tax rates can be as high as 40%.
Prize Withholding – State and federal authorities automatically withhold a portion of your prize at the time of payment. For a $59 million win, expect immediate withholding of around 24% federally and additional state withholdings.
Deductions and Write-offs – Winners can sometimes reduce their taxable amount through charitable contributions, which may help lower taxes if they plan to donate part of their prize.
Tax on Interest Earnings – Any interest earned from investments of the prize money will be subject to taxation as ordinary income, which can further impact your total amount over time.