The winner of the recent $1.337 billion Mega Millions jackpot will most likely pay a hefty tax bill come April of next year.
The person or group that purchased the winning ticket at a Speedway Gas Station in Des Plaines, Illinois, has not been identified, and may never be as state law does not require the owner of the winning ticket to reveal their identity for any prize over $250,000.
Nonetheless, whoever purchased the winning ticket will have to decide whether to take home $780.5 million in a lump sum payment or take the full prize but paid out in annuity over 30 years. Most lottery winners end up taking the lump sum payment.
However, the winner will probably not be putting the full $780.5 million in their bank account as they will have to account for a 24 percent withholding tax from the IRS, according to Forbes. This leaves the winner with about $593 million.
There is also a 37 percent federal income tax to account for, meaning the winner will have to add an extra 13 percent to the 24 percent withholding tax.
After paying the extra 13 percent, approximately $101.4 million, the winner is left with $491 million in earnings from their lump sum payment.
This June 6, 2019, file photo shows the U.S. Treasury Department building at dusk in Washington. (AP Photo/Patrick Semansky)
Then, assuming the winner did not change their address right away, there is Illinois’s 4.95 percent state tax to account for, subtracting another $38.6 million from the lump sum payment.
While $453 million in earnings after tax is nothing to slouch about, it is not the $1.337 billion as advertised by Mega Millions.
Winning the lottery also comes with some other headaches besides figuring how much one owes to the government.
Many lottery winners are often entangled in lawsuits stemming from disputes from family members or coworkers, sometimes over an innocent comment that someone else can misconstrue as an oral agreement, Forbes noted.
It is also recommended that lottery winners keep a low profile, as family members and scammers seek to take advantage of the winner, according to CNBC. After winning, the outlet also noted that hiring a team of professional financial planners, lawyers, tax consultants, and insurance experts is recommended.
The Mega Millions winning jackpot was estimated to be at a total of $1.228 billion but was moved up to $1.337 billion due to last-minute purchases before the deadline on July 29.
The single largest Mega Millions jackpot of $1.537 billion was sold in South Carolina in 2018, and the largest ever-recorded jackpot of $1.586 billion, through Powerball, was shared between winners in California, Florida, and Tennessee in 2016.
You can follow Ethan Letkeman on Twitter at @EthanLetkeman.