With hundreds of millions put as the jackpot, many people think you will get as much as the amount stated if you win a lottery jackpot. For example, in May 2016, Powerball jackpot hit $415 million. If someone did win the prize, some of us would think he/she would get the whole $415 million. Well, that will never happen.
In fact, if you win a lottery, there are 2 important things you should take care first: your anonymity and paying the taxes.
If you want to receive the prize in whole, the only way to do that is by splitting it into 30 payments over the next 29 years. It means you will only receive around $13.83 million per year. The amount will rapidly decrease to $269.7 million if you choose to receive it in one lump sum.
Next, you should pay the federal tax bill. Since winning a lottery is considered as ordinary income, you should pay the 39.6% federal tax. The amount is deducted from your prize and unlike in several countries, there is no way you can cut that rate.
Here is another thing. If you are a US citizen or have a Social Security Number, the US government is liable to automatically withhold 25% of your prize. If you choose the lump sum, this rate will only leave you with $67.4 million. If you can’t provide your SSN, the rate will increase to 28%. If you are a foreigner, the amount will even hit higher rate, at 30%.
You should also pay additional 14.6% federal tax, which has been applied since April 2017. It means you should cash out another $39.4 million from your winning.
After these federal obligations, you will still have more than $162 million in your wallet. Not bad, actually.
However, please be aware. Depending on where you bought the ticket and your current address, you might have to pay local state and local income tax. In New York City, for example, you have to pay 4 elements of taxes: federal, county, state, and city taxes. The more elements to pay, the less money you will be left with.
In most cases, local and state tax will cost you around 15% or roughly $40.5 million. That means you will now have around $122.4 million.
The good news is, if you live in South Dakota, New Hampshire, Floria, Texas, Tennessee, Wyoming, or Washington, you don’t have to pay the personal income tax, which also means you can keep more money.
Sharing the prize after the number is drawn is not going to help you either way. If you want to reduce the amount of taxes you should pay, you better split the ownership of your ticket before the winning number is drawn. If you do it after the drawing, sharing the prize won’t help. Sharing the prize will be considered as a gift to the receiver. As for you, you will be still considered as the sole owner of the ticket and therefore, are liable to pay all the taxes.
So, if I were you, I’d share the ticket before the drawing. If I win or lose, both sides will share the same benefit. No one will lose and everyone will happy. Isn’t it good?